Aid cuts: No major effect as Agaciro comes to the rescue

Saturday December 08 2012

Rwanda's Finance Minister John Rwangombwa. Photo/FILE

Major government programmes will not be affected by donors’ decision to withhold chunks of aid to Rwanda following accusations linking the country to the M23 rebels operating in eastern Democratic Republic of Congo.

The government however says it will cut spending in various areas to minimise shocks. Major or strategic areas will not be affected by the cutting of general budget support by some development partners, it added.

According to Finance Minister John Rwangombwa, the bulk of the money promised by development partners this fiscal year had already been disbursed when details of the United Nations Group of Experts report came out in June this year.

Rwanda has sought ways to wean itself of over-dependence on aid in the wake of the cuts, among them being the Agaciro Development Fund — a solidarity fund contributed to by Rwandans within and outside the country.

So far, the fund has grossed nearly Rwf30 billion.

READ: Rwanda to raise capital through a local fund


According to Mr Rwangombwa, citizens will discuss how the fund will be used and managed during the forthcoming National Dialogue.

READ: National dialogue to decide on Agaciro fund

Shortly after the draft report was leaked, donor countries including Germany, the United Kingdom, the Netherlands and the United States announced that they were suspending aid to Rwanda over the allegations of supporting the M23 rebels.

READ: UK cuts aid to Kigali over rebel support

The accusations also affected an expected dispatch of crucial funds from the African Development Bank (AfDB).

“We expected about $40 million from AfDB as general budget support but that was delayed, although the bank had already dispatched sector support funds amounting to $13.4 million meant for the agriculture sector,”

“The UK had promised $80 million in general budget support and of that $44 million had already been released and about $33 million was still pending. The EU had already dispatched all the funds it had promised to Rwanda,” the Finance minister explained.

According Mr Rwangombwa, Rwanda has written to the various partners who suspended aid in one way or another, expressing its frustration and concern over the breached Paris Declaration and other laws that govern how aid partnership agreements should be handled.

He said the aid cuts affected mostly general budget support and to a smaller extent sector budget support but countries like Germany, the Netherlands and UK had already disbursed some funds budgeted for specific projects.

Suspended military aid

Appearing before Parliament last week, Mr Rwangombwa said that the EU is among the institutions that influenced AfDB to delay the funds. He added that “there has been a lot of politics” involved in decisions made by donors who have disregarded the agreements entered into with Rwanda.

Germany withheld $9.3 million and the US, which was for the first time going to channel money through general budget support, $12 million. The US usually channels its support through projects.

The American government earlier this year also suspended military aid over accusations of Rwanda abetting conflict in eastern DRC.

ALSO READ: Rwanda puts on brave face at Belgium’s military aid cut

However, according to Mr Rwangombwa, the US has agreed to disburse that amount through water harvest and irrigation projects within the agriculture sector.

Like the AfDB, the World Bank is also still withholding $125 million for the current financial year. Both institutions, according to Mr Rwangombwa, acted upon pressure from donors and shareholders.

Belgium has also suspended an unspecified amount in aid to Rwanda, which was supposed to be dispatched at the end of the year.

“In total, Rwanda was expecting $362 million from donors in general and sector budget support and of that we had received $122 million while $240 million is yet to be released,” he revealed.

Aid didn’t go to rebels

Rwanda says the suspensions have dealt a heavy blow to this year’s budget but the country feels hard-done by because, according to Mr Rwangombwa, the donors agree to the fact that the aid given in the past was used properly and there was no indication that it went to supporting the rebels.

Citing the case of Britain, Mr Rwangombwa said he believed Rwanda has fallen victim to a major campaign in Western countries, mainly through the media.

“We have seen over the past few months a vigorous media campaign in the UK questioning the aid given to Rwanda and, at the end of the day, it becomes difficult for decision makers in those countries to make any decisions due to the media outrage,” he observed.

A decision by the former UK secretary for international affairs, Andrew Mitchell, to release £16 million ($25.6 million) in September on his last day in office was met with outrage, putting him under pressure. Mr Mitchell would later resign as government whip in different circumstances altogether.

Although the government hopes the money withheld by multilateral institutions will eventually be released, it has nonetheless already ruled out counting on the aid from individual countries.

“We are not looking at that money anymore; we are now revising the budget, which will be presented to parliament in January,” Mr Rwangombwa said. “We hope to cut down on spending if these funds from our bilateral co-operation don’t come.

“Our hope is that the money from the World Bank and AfDB will be released with time, and so we will consider that our contingent expenditure if it comes late.”

The 2012/13 budget is Rwf1.38 trillion ($2.1 million), of which the suspended aid comprises 12 per cent. The government expects shocks in some areas but says this might not have a major effect on its planning.

Mr Rwangombwa said the government would prioritise but that that should not be cause for alarm for now, adding that government would not cut jobs or impose taxes on workers to fill the gap.

Inflation fears

The government, however, fears that the withheld funds will have a ripple effect on the franc with the shortage of dollars in the economy, since the funds usually come in as revenue that strengthens the local currency.

According to the minister, the aid cuts will reduce the anticipated economic growth by at least 1.5 per cent this year from the anticipated 7.4 per cent.

“We don’t see this as a major setback but it is a slight decline in our projections. However, we do anticipate an effect on our foreign exchange position,” he said.

According to the Ministry of Finance, Rwanda imports goods worth $200 million annually and by November the country had foreign reserves to last it about four and a half months. The remaining $240 million will therefore have an effect on the country’s foreign reserves for a month or so.

However, Mr Rwangombwa warned that speculation among currency traders and the business community could affect the franc during these hard times.

Rwanda has expressed concern that the recent developments surrounding aid are part of a major conspiracy to push the country into a quagmire, beyond just problems in the Congo, with the Minister of Foreign Affairs, Louise Mushikiwabo, pointing out that cutting aid won’t resolve the conflict.

Cannot be a solution

“What we have always reiterated is that halting aid to Rwanda cannot be a solution to the problems in the DRC and that’s why we think this issue should be examined beyond the Congo problem,” she said.

“Rwanda asked its development partners to use their capacity to investigate the allegations in the UN report, which we have always said are baseless, before making any decisions, and none of that has been done.”

Ms Mushikiwabo says Rwanda has decided to pull the plug on the accusations since it appears the agenda has already been set.

“As a government, we feel we are done with these accusations,” Ms Mushikiwabo told Rwanda Today. “We are done with this stupidity. In the end you can’t engage with an account that doesn’t have common sense or logic. We are tired of this ridiculous accusation.”