2007 Budget Execution

1. 2007 Budget Execution Presented by Elias Baingana National Budget Director

2. Presentation Outline • Key Policy objectives for 2007 • Execution of the original Budget • Causes for the Revision • Budget Performance • Government Resources • Government Outlays • Deficit and Financing • Proposals for 2008 Budget Revision • Conclusion

3. 2007 Key Policy Objectives • To maintain a sustainable real GDP growth of between 6-7% compared to about 5.8% achieved in 2006; • To maintain macro-economic stability by keeping inflation rate below 10% as well as maintain a stable exchange rate; • Contain external borrowing to remain debt sustainable at below 20% of GDP;

4. 2007 Key Policy Objectives • Raising domestic revenue as a share of GDP from 13.1% by about 0.2% of GDP; • Increasing capital expenditure as a share of GDP to about 9.6% compared to 7.5% in 2006; • Raising priority expenditure as a share of GDP from 9.5% in 2006 to 11.5% in 2007; • Maintaining external gross official reserves at about 5.1 months of imports of goods and services.

5. Execution of the Original Budget • The budget approved by Parliament projected total expenditure and net lending at RwF 485.6 bn; • The total revenue and grants were also projected at RwF 458.5 bn; • The overall deficit excluding grants was projected at RwF 268.5 bn, while the deficit including grants was expected to reach RwF 27.1 bn; • The expenditure included an amount of RwF 15.8 bn to be financed by an equal amount in the total revenue and grants figure.

6. Causes of the Revision • In the middle of the year, it became clear that additional grants to finance contingent expenditure would not be available; • At the same time, revenue performance had been good to warrant an upward adjustment; • There was a need to include some priority expenditures that had not benefited from allocations in the original budget; • It was also necessary to include expenditures to be financed with the FTI grants;

7. Causes of the Revision • Accordingly, the total expenditure and net lending was revised upwards to RwF 490.9 bn as against RwF 485.6 bn; and • Total Revenue and Grants were equally revised upwards to RwF 459.5 bn from 458.5 bn. • The overall deficit excluding grants was projected to decline to RwF 264.3 bn from RwF 268.5 bn while including grants increased slightly from RwF 27.1 bn to RwF 31.4 bn.

8. Budget Performance - Resources

9. Budget Performance - Outlays

10. Budget Performance - Outlays • Performance for the year differed slightly as shown in the table. • Total revenues performed better and exceeded the target by about 12%; • Total expenditure and net lending which benefited from receipts from sale of Rwandatel was about the same as projected; • The overall deficit excluding grants declined to RwF 237.8 bn as against 264.3 bn projected; • The overall deficit including grants also declined from RwF 31.4 bn to RwF 30.5 bn.

11. Resources – Domestic Revenue

12. Resources – Domestic Revenue • Tax Revenue collections continued to increase as a result of buoyant economic activities and increased monetization of the economy. • In addition, RRA administrative improvements continued to have a positive impact on tax revenue collections. • Collections under PAYE and VAT continued to contribute large shares in revenue mobilization. • The shares of the two tax heads rose from 51.2% in 2005 to 56.5% in 2007.

13. Resources – Domestic Revenue • BUT taxes on international trade registered a shortfall despite an increase in imports by 21% in 2007. This is due to a number of factors: • A shift in the composition of imports with an increasing share of capital gods that does not attract duties; • A shift in the origin of imports with a large share coming COMESA and EAC countries that pay low or no duties; • An appreciation of the Rwanda Franc against the dollar by about 1% in 2007.

14. Resources - Non Tax Revenue • The collections of RwF 15.1 bn was about RwF 3.1 BN higher than programmed; • GoR dividends contributed about RwF 3.1 bn with a large share received from BNR; • The largest share was collected from administrative fees and charges.

15. Resources - External Resources

16. Resources - External Resources • There was a shortfall in budgetary support financing of about US$ 14 mn mainly due to delayed disbursement of the FTI Education Grant and the OPEC Fund HIPC Loan. • With regard to the externally financed capital budget, total cash receipts for projects through BNR amounted to US$ 151.1 mn, which is equivalent to RwF 83 bn. • Loans amounted to US$ 83.7 mn and Grants amounted to US$ 67.4 mn.

17. Government Outlays – Economic Classification

18. Government Outlays – Economic Classification

19. Government Outlays – Economic Classification • Wages & Salaries: There was an excess spending of RwF 4.8 billion on account of additional spending by MINEDUC and MINISANTE to fund additional recruitments in the districts; • Originally, they had required an additional spending of RwF 6.6 bn.

20. Government Outlays – Economic Classification • Goods and services: There was an excess spending of RwF 6.0 bn; • This was mainly due to excess spending of RwF 5.0 bn by FER and about RwF 0.4 bn by MINEDUC for rehabilitation and maintenance of schools; • In the case of FER, RwF 4.0 bn of the original allocation was made contingent to be financed with additional grants; • Since the grants did not come, a portion of the excess revenue collections was used to finance the additional expenditure.

21. Government Outlays – Economic Classification • Domestic Capital: There was an excess spending of RwF 10.5 bn mainly due to: • MININFRA – RwF 2.3 bn on various energy and road construction projects; • MINEDUC – RwF 1.0 bn for construction of new schools; • MINECOFIN – RwF 1.0 bn for export promotion; • MINITERE – RwF 1.0 bn for water and sanitation projects; • MINALOC – RwF 1.0 bn to the CDF for various projects; • MINICOM – RwF 0.6 bn for the development of the Free Zone.

22. Government Outlays – Economic Classification • Interest Costs: There was an excess spending of RwF 1.0 bn; • The excess spending was on account of a large share of treasury bills sales to commercial banks for cash flow purposes.

23. Government Outlays – Economic Classification • Transfers and Subsidies: There was an under spending of RwF 3.6 bn; • This was mainly due to lower transfers to BNR as well as lower spending by tertiary institutions on the hiring of local professional staff.

24. Government Outlays – Economic Classification • Exceptional Expenditure: - There was a lower spending of RwF 0.7 bn; • The lower spending was on account of lower than projected execution rate of the Demobilization programme.

25. Government Outlays – Economic Classification • Net Lending: Divestiture of Rwandatel yielded US$ 50 mn, which was not programmed in the revised budget; • This impacted positively on the total expenditure figure by a net decrease of RwF 8.1 bn.

26. Government Outlays – Economic Classification • Externally financed capital budget: CEPEX has compiled detailed data on spending and resources for all projects; • However, this information is not comprehensive for an accurate budget implementation report.

27. Government Outlays – Economic Classification • There are several components of data required and these are: • Cash disbursement through BNR; • Direct payments externally to contractors and suppliers; • Direct imports for projects for instance machinery, equipments and other goods and services; • Technical Assistance.

28. Government Outlays – Economic Classification • The issue is mainly one of how to obtain accurate and timely data; • To avoid discrepancy from this source, the budget estimates for expenditures and resources have been maintained as shown in the fiscal table.

29. Government Outlays - Functional Classification

30. Priority Expenditure

31. Deficits and Financing

32. 2008 Revised Budget • We have distributed 2 tables showing the revised 2008 budget as agreed with the IMF; • The additional expenditures are being financed with additional resources as shown in the tables.

33. Revised Budget for 2008 - Resources

34. Revised Budget for 2008 - Outlays

35. Revised Budget for 2008 - Financing

36. Revised Budget for 2008 - Resources

37. Revised Budget for 2008 - Expenditure

38. Conclusion • 2007 Budget implementation was overall satisfactory. The set objectives were achieved as follows: • Real GDP growth increased to 6%; • Inflation rose to 9.1%; • External debt stock reached US$ 576.6 million (17.3% OF GDP); • Domestic Revenue increased to 13.8% of GDP; • Capital expenditure was achieved at 10.2% of GDP; • Priority expenditure reached 11.8% of GDP; • Gross official reserves at 5.1 months of imports of goods and services was also achieved.

39. Conclusion • There are still some challenges that need to be addressed to perform even better: • Mainstreaming of externally financed budget execution; • Accelerating implementation of projects and programmes in the Districts; • Better monitoring of operations through the zero balance account to reduce discrepancies in the monetary and fiscal reporting system. Thank you!