Presentation Outline I. Medium Term Fiscal Strategy II. 2012/13 - - PDF document

5/8/2012 1

Presentation Outline

I. Medium Term Fiscal Strategy II. 2012/13 Budget Framework

• III. Sectoral Resource Allocation

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• IV. Key Policy Issues

V. Conclusion

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Medium Term Fiscal Strategy

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Medium Term Fiscal Strategy

 The medium term fiscal strategy of the Government is

to deepen fiscal consolidation to close the fiscal gap.

 D

ti i j t d t b 0 3% f GDP

 Domestic revenue is projected to grow by 0.3% of GDP

annually rising from 14% of GDP in 2012/13 to 14.9% of GDP by 2015/16.

 External grants are projected to decline as a share of

GDP with budget support grants dropping from 11.4% of GDP in 2012/13 to 7.2% by 2015/16.

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 Total loans are projected to increase from 0.2% of GDP in

2012/13 to 0.6% of GDP in 2014/15.

 However, the rise in total loans will not fully compensate

for the decline in external grants.

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Medium Term Fiscal Strategy

 Total expenditures and net lending are projected to

increase to 28% of GDP in 2012/13 but decrease gradually to 24.5% of GDP in 2014/15.

 The overall fiscal balance including grants has been

allowed to grow by about 0.7% of GDP in 2012/13 to accommodate increase in the wage bill and domestic capital.

 The overall fiscal balance is however projected to

gradually decline to 2 3% of GDP by 2014/15

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gradually decline to 2.3% of GDP by 2014/15.

 The net domestic financing at a healthy level of 0.3% of

GDP in 2012/13 will be safeguarded even in the medium term.

Medium Term Fiscal Strategy

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2012/13 Budget Framework

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The 2012/13 Budget Framework

 The 2012/13 budget has been formulated with the following

• bjectives in mind:

 Increase domestic revenue mobilization  Allocate resources for the implementation of the Pay and  Allocate resources for the implementation of the Pay and

Retention Policy

 Create efficiency savings without compromising service

delivery and allocate resources to some priority programs

 Broaden the coverage of projects grants in fiscal operations

 Total Revenue and Grants are projected to rise to 25.4% of GDP

in 2012/13 compared to 25.1% in revised 2011/12.

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 Total Expenditure and Net Lending are estimated at 28% of GDP

compared to 26.9% in the 2011/12 revised budget.

 The overall fiscal deficit is estimated at 2.6% of GDP in 2012/13

compared to the 1.9% in the revised 2011/12.

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2012/13 Budget Framework

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The 2012/13 Budget Framework

 The tax revenue projections do not envisage significant changes to

the tax regime except for the SME tax schedule.

 The current tax regime for small enterprises is a flat tax rate of 4%  The current tax regime for small enterprises is a flat tax rate of 4%

• n turnover if no books of accounts are kept. The change of this

regime has been motivated by the following factors:

 Lower both compliance and administrative costs  Reduce uncertainties faced by taxpayers  Improve the level of voluntary compliance

 It is proposed to classify SMEs into two groups on the basis of

i h h f ll i

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turnover with the following tax rates:

 Turnover of between RwF 12 Mn and RwF 50 Mn to pay a

presumptive tax at 3% instead of 4%.

 Classify SMEs with a turnover of RwF 12 Mn and below into 4

bands with specified presumptive rates.

 The change of tax regime for SMEs is envisaged to be revenue

neutral.

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The 2012/13 Budget Framework

 The non tax revenue projections for 2012/13 is RwF 7.6 billion

lower than the 2011/12 revised estimate mainly due to one‐off receipts from Airtel license fees.

 Administrative fees continue to contribute the largest share of

non tax revenues with travel documents, migration visas, driving license and ID cards being key revenue items in 2012/13.

 The total grants for 2012/13 is 0.1% of GDP higher than the

2011/12 budget but budget support grants are lower 0.6% of GDP lower than that of the 2011/12 revised budget .

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 Total capital grants are projected to increase by 1.5% of GDP in

2012/13 as compared to 2011/12 on account of global funds and increased coverage of capital projects on budget.

 External project loans are projected to increase by 0.9% of GDP

in 2012/13 compared to the 2011/12 revised budget.

The 2012/13 Budget Framework

 Recurrent expenditures are projected to decline as a share

• f GDP from 14.5% in 2011/12 to 14.1% in 2012/13 but the

absolute amount increases.

 The main reasons for the decline in recurrent expenditures

for 2012/13 compared to 2011/12 are:

 Reclassification of Districts projects financed by Central

Government under Development budget in 2012/13 compared to 2011/12. Creating efficienc sa ings from some inefficient items

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 Creating efficiency savings from some inefficient items

under goods and services.

 Reduced allocation to exceptional expenditures as

most FARG beneficiaries are mainstreamed into other social programmes.

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The 2012/13 Budget Framework

 The allocation to development budget is 1.3% of GDP

higher than the 2011/12 revised budget estimate.

 Th

i f th i i d l t b d t

 The main reasons for the increase in development budget

in 2012/13 include:

 Broadening

the coverage

• f

externally financed projects captured on budget.

 Deliberate action to allocate resources to strategic and

priority projects.

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 Reclassification of Districts projects financed by Central

Government under Development budget in 2012/13 compared to 2011/12.

RLDSF Projects under Districts Budgets

 The RLDSF projects supported by DPs will for the 2012/13

budget be provided under districts budgets:

 Development partners will continue to transfer their

t ib ti t th RLDSF t i d ith contribution to the RLDSF account in accordance with the agreed disbursement schedule and conditions.

 RLDSF will be responsible to disburse funds to districts

and monitor the way these funds are put to use.

 Districts shall be responsible for implementing the

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projects and reporting as required.

 MINECOFIN will provide the technical support for

spending through the SmartIFMS.

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The 2012/13 Budget Framework

 The gross spending under net lending in 2012/13 is

estimated at RwF 22.0 bn. However net expenditure will fall to RwF 9.8 bn due to accrual of privatization receipts.

 The 2012/13 overall budget deficit is 2.8% of GDP and grows

by 0.7% of GDP compared to the 2011/12 revised budget.

 About 89% of the overall deficit (2.5% of GDP) will be

financed by net inflows of foreign loans.

 About 11% of the overall budget deficit (0 3% of GDP) will be

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 About 11% of the overall budget deficit (0.3% of GDP) will be

financed through domestic borrowing.

 The total domestic debt stock will only increase marginally to

RwF 188.1 bn compared to RwF 175.4 bn estimate in the 2011/12 revised budget.

Sectoral Resource Allocation

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Sectoral Resource Allocation

 The estimated investment for EDPRS implementation was RwF3,436 billion

and by end of 2012/13 financial year, the total cost of implementing EDPRS will be RwF 5,129.4 Bn, 49.3% above the projected cost.

 The final year of implementing EDPRS 2012/13 will focus completing

EDPRS priorities in progress while targeting resources to critical areas highlighted in the recent EICV report such as:

 Infrastructure development especially energy generation.  Creating off‐farm employment targeting SMEs development.  Promoting urbanization as integral part of development.

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g g p p

 Maximizing tourism and mining potentials.  Scaling up market access by increasing investment in feeder roads.  Targeting social protection interventions.

Sectoral Resource Allocation

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 At the time of preparing EDPRS in 2007, the total budget was RwF

493.3 bn. Estimates for EDPRS investment were estimated on an average of about 12% annual growth in budget.

 However, growth in the budget for subsequent years far exceeded the

projections for different reasons.

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Sectoral Resource Allocation

 The infrastructure sectors at RwF 1,173 billion have benefited 73% above

the estimated share of the total budget and are at 22.9% share as compared to the target of 19.7%.

 The increased investment in Infrastructure was allowed by the fiscal

space created under Human Development and Social Sectors as well as space created under Human Development and Social Sectors as well as in the productive sectors.

 The total investment in productive sectors exceed the projected investment

by 27% but falls short of the projected share of 16.7% by a mark of 2.5%.

 The overall performance of indicators in the productive sectors remain

• n or above target.

 The total investment in HD & Social sectors exceed the projected investment

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 The total investment in HD & Social sectors exceed the projected investment

by 35.8% but falls short of the projected share of 34.2% by a mark of 3.1%. Like productive sectors, performance indicators are on track.

 The total investment in the Governance and Sovereignty Cluster exceed the

projected investment by 61.7% and at 31.8% share of the total budget, the cluster is above the estimated share by 2.4%

Resource Allocation ‐ Infrastructure

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Resource Allocation ‐ Infrastructure

 The key projects and programmes funded include:  Finalization of Kigali‐Ruhengeri road (83.1 km) .  Rehabilitation of Kitabi‐Crete Congo/Nil road (30Km).  Paving the road of Cyangugu (Rusizi)‐Ntendezi‐Mwityazo (50 Km )  Paving the road of Cyangugu (Rusizi) Ntendezi Mwityazo (50 Km.)  Rehabilitation of Kigali‐Gatuna road (77.8km).  Rehabilitation of Kivu‐Belt road (66 km) Lot 4 and 5.  Rehabilitation of Kivu‐Belt (24.5 km) Lot 6.  Expropriation of Bugesera International Airport.  Construction of access Road to Bugesera Airport (25 KM).  Extension of Kigali International Airport.  Extension and rehabilitation of Kamembe Terminal and runway.

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xtension and rehabilitation of Kamembe Terminal and runway.

 Construction of access road to Tumba College.  Rehabilitation of Nyabarongo Bridge.  Rehabilitation of Huye Urban Roads (4 KM).  Upgrading of 5.4Km in Rubavu Urban Roads Network.  Rehabilitation of Rusizi Urban Road (2.4 KM).

Resource Allocation ‐ Infrastructure

 Upgrade of Ngoma‐Nyanza road network (130 KM).  Updrade of Huye‐Kibeho‐Musee Road (57 KM).  Updrade of Muhanga Urban Road (2.8 KM).  Updrade of Gicumbi‐Musanze road (30 KM)  Updrade of Gicumbi Musanze road (30 KM).  Updrade of Rwamagana and Nyagatare urban roads (30 KM).  Increase allocation for feeder roads to improve market access.  Commission a Detailed Engineering Design of Isaka‐Kigali‐Keza‐Gitega‐

Musongati Railway .

 Provide for energy subsidies to augment energy generation.  Support the running costs of RwandAir.  Fast track Micro Hydro sites development estimated capacity 24.18MW in

d l h ld b /

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10 poorest districts to supply power to 61,000 Households by 2013/14.

 Increase of the national power generation by 15 MW from the

development of Peat to Power project in Bugarama in Rusizi district.

 Speed up the exploitation of geothermal resource, the first drilling is

planned to start by June 2012.

 Improve access to electricity in the 10 poorest districts highlighted in the

Household Living Conditions Survey from 2% to 13% by end of 2013.

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Resource Allocation – Productive Capacities

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Resource Allocation – Productive Capacities

 The key projects and programs funded include:  Support irrigation program (incl LWH) to facilitate steady

agricultural supply. g pp y

 Support fertilizer purchase and use through increasing the

supply of fertilizer in the country to over 45,000 MT.

 Improve post‐harvest storage facilities through warehouse

and silo investments.

 Implement the One Cow per Poor Family Program to boost

rural family incomes.

 Develop over 25,000 hectares of tea and coffee in Southern

Province to increase smallholder incomes

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Province to increase smallholder incomes.

 Scale‐up farmer extension services across the country

through farmer field schools and researching on how to improve seed productivity for the farmer.

 Continue Doing Business reforms to level the field for the

Rwandan private sector and attract more Foreign Direct Investments.

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Resource Allocation – Productive Capacities

 Support Hangumurimo program for start‐up SMEs and SME

cluster development.

 Increase value addition of local produce through establishing

community processing centers for priority products community processing centers for priority products.

 Develop a pilot industrial park at provincial level and continue

relocation of the Gikondo industrial park to the new SEZ in Kigali.

 Scale up construction of markets in districts to boost rural

incomes.

 Continue to provide technical and financial Support to

Umurenge SACCO, with the aim of making them sustainable d i t fi i l i d t dit

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and increase access to financial services and access to credit.

 Plant 500,000 agro forestry trees and grasses for soil

replenishment and grasses.

 Construct radical and progressive terraces in Musasa,

Mushubati, Boneza (Rutsiro District), Kilimbi and Gihombo (Nyamasheke District), Mururu (Rusizi District).

 Rehabilitate Sebeya and Kadahokwa watersheds.

Resource Allocation – HD + Social Sectors

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Resource Allocation – HD + Social Sectors

 The key programs and projects funded include:  Operationalization of the new Mutuelle de santé policy to

promote health insurance and increase access to health care for the population.

 Continue the construction and equipment of Health facilities to

improve geographical accessibility to health care.

 Support performance based financing programme for health

personnel remuneration to increase the quality of health care.

 Implement the new programs of male Circumcision, HPV

vaccine, and specialized surgical interventions.

 Deploy more health professionals in hospitals and health

centers.

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centers.

 Support capacity building of health professional through

review of programs for Nursing training and training of doctors.

 Organize Itorero for Health Professionals.  Increase access to education through construction of

additional new classrooms and latrines.

Resource Allocation – HD + Social Sectors

 Train teachers in English to ensure proficiency, procure textbooks

written in English at Primary and Secondary Levels and recruit more qualified teachers.

 Promote science and technology by putting up more science

l b t i i th h l laboratories in the school.

 Integrate ICT in Primary Education through provision XO Laptops

(OLPC).

 Promote Technical vocational Education and Training by

providing equipments in Integrated Polytechnic Regional Centre (IPRCs) and other technical and vocational centers

 Support UMWALIMU SACCO to improve teachers’ welfare.  Conduct an assessment to harmonize social safety nets

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 Conduct ITORERO of 500 Historically Marginarized People at

Nkumba.

 Organize and conduct Umuganda competitions targeting local

community and review of Umuganda regulation

 Monitor and sensitize people on settlement in Imidugudu.  Monitor the operationalization of post Nyakatsi Program.

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Resource Allocation – Governance + Sovereignty

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Resource Allocation – Governance + Sovereignty

 The key projects and programs funded include:  Support effective implementation of the National Census  Implement fully the Electronic Trading Platform and the

National Investment Trust to promote secondary financial National Investment Trust to promote secondary financial markets and leverage domestic savings

 Support the operations of monetary policy for prudent fiscal

and monetary management

 Provide the transfer to districts for operating costs (block

grant) as provided by the law

 Provide for Debt and interest repayments  Implementation of the Public Finance Management Reform

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p g Strategy

 Support for the functioning of the Rwanda diplomatic

missions abroad

 Provide for remuneration of personnel of Judiciary, defense

and national police

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Resource Allocation – Governance + Sovereignty

 The key projects and programs funded include:  Support to peace keeping operations abroad  Implementation of ID projects and operationalization

f th S t C d

• f the Smart Card

 Construction of the Kigali Forensic Laboratory  Acquisition of Emergency Rescue Equipment  Construction and rehabilitation of buildings for

Embassies

 Strengthening of institutional capacities in charge of

internal security

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 Strengthen regional integration as well as regional and

international cooperation

 Support for the functioning of executive and legislative

• rgans

Key Policy Issues

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Key Policy Issues for Consideration

 Freeze further wage increases for 2 subsequent years for

affordability and sustainability reasons.

 Keep the approved structures and index values stable for a

period of at least 2 years.

 Priorities emerging after budget approval should only be

accommodated through reprioritization.

 Consider the additional cutting of 4 2% on budget lines of

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 Consider the additional cutting of 4.2% on budget lines of

meetings, seminars and training costs to fund Kamembe Airport runway.

 Limit recruitment of contractual personnel beyond the

numbers approved on organizational structures.

Conclusion

 The Budget Framework for 2012/13 to 2014/15 covers

the last year of EDPRS and lays the foundation for the next Development Strategy.

 By the end of 2012/13 most of the EDPRS targets will be

achieved and exceeded.

 The medium term projections envisage decline in donor

grants and limited fiscal space in general. Accordingly, resource allocation will be more targeted to high impact programmes and projects

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programmes and projects.

 Furthermore, efforts to attract FDIs and mobile domestic

private investments will be scaled up to augment Government budget.

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Conclusion

 There are a number of potential risks that might

compromise the achievement of objectives set in this Budget Framework which include:

 Weaker global demand  Weaker global demand  Lower commodity prices  High fuel prices  Delays in disbursement of donor funds  The

Government will continue to monitor the developments and take corrective action where needed.

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 The 2012/13 budget proposals have been approved by

Cabinet and have been submitted for consideration by Parliament.

Thank you

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