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The East African : June 16th 2014
12 EAC BUDGET 2014-2015 Rwanda pumps in more money to accelerate growth to 6pc The outlook is gene≥ally positive, but the≥e is some conce≥n By BERNA NAMATA The East African T he Rwandan government plans to spend Rwf 1.75 trillion ($2.58 billion) in the 2014/15 fiscal year, an increase of Rwf 75.5 billion ($110 million), compared with Rwf1.6 trillion ($ 2.3 billion) of spending in the 2013/14 revised budget as it seeks to address the slowdown experienced in 2013 that saw growth drop to 4.6 per cent from 7.3 per cent in 2012. The drop was attributed to the poor performance of agriculture and the suspension of budget support in 2012. Now, the government is banking on a rebound in the service sector, low inflation and better performance of the agriculture sector to drive growth to 6 per cent in 2014 and 6.7 per cent in 2015. Inflation is projected to exceed 5 per cent this year. Minister for Finance Claver Gatete said the government has put in place a budget monitoring team to follow up on implementation of the projects that are expected to boost growth. “We want to monitor the areas that are making a huge contribution to the GDP to make sure that these things are implemented as agreed. With extra effort we may even get a higher GDP,” Mr Gatete told The EastAfrican. In its current second Eco- nomic and Development Poverty Reduction Strategy (EDPRS II), the government is targeting an average economic growth of 11.5 per cent by 2020 to allow it to lift more Rwandans out of poverty. “The economic outlook is generally positive, but there is some concern about the pace of economic pickup. “Agriculture growth is pro- jected to be stronger in 2014 based on favourable first season harvest,” said Mitra Farahbaksh, the International Monetary Fund resident representative for Rwanda. Ms Farahbaksh added that the expected catch up in implementation of government investment projects and increase in credit to the private sector should provide a boost to economic growth. “Risks centre around de- The country’s main export, coffee is dependent on volatile global demand. Picture: File lays in implementation of government financed projects and a weak agricultural harvest,” she said. Analysts say the key chal- lenge for government will be to maintain this strong growth and low inflation in a highly uncertain global environment. This is in addition to weaker than expected global demand that could negatively affect Rwanda’s exports and higher than expected international food and fuel prices that could add to inflationary pressures. In particular, Rwanda’s ability to incur additional debt remains vulnerable to a sharp decrease in exports due to the country’s narrow export base or to a decline in foreign aid. Rwanda’s traditional ex- ports including tea, coffee, pyrethrum as well as minerals continued to dominate the sector in 2013, representing 62.1 per cent of total exports against 59.4 per cent in 2012. This dependence on a few primary commodities remains one of the main challenges for a country seeking to reduce the high external RESOURCES Total domestic resources are estimated at Rwf 1.08 trillion ($ 1.5 billion) which accounting for 62 per cent of the total budget. These include tax revenue worth Rwf 906.8 billion ($1.3 billion), non-tax revenue worth Rw79 billion ($116 million), domestic financing worth Rwf 95.6 trade deficit and build resilience to external shocks. For instance, while exports are projected to grow by seven per cent to $751 million from $ 703 million in 2013, the import bill is also expected to rise by 16 per cent to $2147.4 million from the $1148.4 million spent in 2013. As a result, the country’s current account deficit is expected to deteriorate to $803.2 million in 2014 from $537.5 million in 2013. Priority areas under the “This year’s budget theme is “Infrastructure development to accelerate export growth” EDPRS2 to be funded in the 2014/15 budget include energy, agriculture, exports promotion, urbanisation and rural settlement, employment programmes and skills development including Technical Vocational Education and Training (TVET), social protection and graduation and promotion of green economy. This year’s expenditure projections are tied to the emerging priorities grouped under the EDPRS2 thematic areas of economic transformation for rapid growth, rural development, productivity and youth employment creation as well as accountable governance. These thematic billion ($140 million) and net lending worth Rwf 4 billion ($ 5.8 million). External resources are projected at Rwf 667.6 billion ($981 million), which accounting for 38 per cent of the total budget. Total grants account for Rwf544.8 billion($ 800 million) representing 31 per areas have been allocated Rwf 915 billion representing 52 per cent of the total budget. In the financial year 2014/ 15, the expenditure on development projects is projected at Rwf 784.1 billion or 45 per cent of the total budget compared to Rwf 758.8 billion in the 2013/14 revised budget. “We have to be realistic that growth does not simply come… This is why for the first time we are making sure that we are monitoring it,” Mr Gatete said, adding that GDP per capita this year is likely to hit $742. In the fiscal year 2014/15, total tax revenue collections are projected to increase to Rwf906.8 billion ($1.34 billion) from Rwf782.5 billion ($1.16 billion) in 2013/2014. To achieve this target, the government will implement tax reforms that include increasing excise duty to 10 per cent on airtime and reducing exemptions on VAT for investment certificate holders under the current investment code. It will also improve revenue collection by enforcing the use of electronic tax devices. The EastAfrican NEWS JUNE 14-20,2014 Region focus now on inf≥ast≥uctu≥e COMMENTARY RISHAB THAKRAR AND RAVINDA SIKAND “The trend is a pointer to the realisation of the importance of its multiplier effect on the economy.” structure development are a pointer to the seriousness with which the regional governments are taking this key aspect of the economy. Together with a raft of T proposed changes to taxation legislation, the focus on East Africa as a regional economic hub is clearer now than ever before. So is the growing importance of natural resources in the region in providing a vital source of revenue. This is new ground. The trend is a pointer to the realisation of the importance of infrastructure and its multiplier effect in the overall economic growth and development of the region. This year, Kenya has allo- cated $266.3 million raised from the Railway Development Levy to the construction of the standard gauge railway (SGR) that will connect the country to Uganda and eventually Rwanda. Kenya will also soon commission Terminal 4 at the Jomo Kenyatta International Airport. In addition, the country has also allocated $195 million for the upgrading of Kisumu and Isiolo airports and the construction of three new airports in Mandera, Malindi and Suneka. The country has also allocated over $1.2 billion for the construction and expansion of road networks to ease the movement of goods and services. Tanzania, on the other hand, has set aside $1.3 billion for procurement of wagons, rehabilitation of the central railway line and for the construction and rehabilitation of roads and bridges. Uganda is looking at reducing congestion in urban areas, cost of transport and transportation of goods and services. Tanzania has also allo- cated significant amounts for electricity generation “Africa has consistently reported economic growth rates higher than most regions he massive budgetary allocations by East African countries to infra- and distribution. Uganda has increased its budget allocation for infrastructure to $990 million from $965 million. The allocation of more funds towards infrastructure is meant to accelerate the construction of ongoing road projects, new road projects and the upgrading of the railway to standard gauge. While that is the case, Kenya like the rest of the East African countries has come up with ingenious ways to generate revenue to fund these big projects. All the three countries have proposed changes to their tax regime legislation, which now includes tax on natural resources. In this year’s budget, Ken- ya for example has proposed replacement of withholding tax on assignment of rights for oil and gas companies with income tax, which will be a net gain in line with international best practice. There is also a proposal to amend the definition of a permanent establishment for transfer pricing purposes and restriction of expenses of permanent establishments. Once operational, the laws will require both local and foreign taxpayers to provide the Commissioner with up to date information on the changes in business and corporate structure. Why are EAC countries re-energising their focus on infrastructure? That Africa is the next economic hub is now not a secret. Africa has consistently reported economic growth rates higher than most regions of the world. Africa has enough economic growth potential. In addition to this, the abundance of natural resources only adds to growth prospects. But perhaps it is the recent discovery of oil and gas and other minerals in East Africa that is the single biggest reason that has seen the sudden re-focus on investment in infrastructure. Without infrastructure, it is almost impossible to exploit these resources. Rishab Thakrar is a busi- ness analyst while Ravinder Sikand is a director, corporate financial Services, at Deloitte East Africa. The views are not necessarily those of Deloitte.
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