RWANDA'S 2009-2010 BUDGET TABLED BEFORE PARLIAMENT

UNCLAS KIGALI 000370

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PREL PGOV EAID RW
SUBJECT: RWANDA'S 2009-2010 BUDGET TABLED BEFORE PARLIAMENT

REF: KIGALI 0348


1. (SBU) Summary. Finance Minister James Musoni introduced
the Government of Rwanda's (GOR) 2009-2010 budget before
Parliament on June 11. His budget message laid out a USD
1.452 billion budget, up 24 percent from last year in nominal
terms, with domestic resources for the first time exceeding
donor budget contributions. With the advent of the East
African Community (EAC) Common External Tariff on July 1, the
GOR stands to lose USD 21.5 million dollars, a significant
revenue loss. It will seek to recover this shortfall by
application to a Common Market for Eastern and Southern
Africa (COMESA) compensation fund, and through an increase in
excise duties on telecommunications "air-time" from three to
five percent. The budget emphasizes infrastructure and
education expenditures, with significant budget allocations
made directly to the 30 district governments. Contacts at
the Finance Ministry project a budget deficit of about USD
123 million, or 2.3 percent of GDP. Despite difficult
economic trends worldwide, the GOR projects a 5 percent
growth in its economy in 2009. End summary.


2. (SBU) Finance Minister James Musoni presented to
Parliament on June 11 the 2009-2010 budget, the first to be
aligned with the EAC July 1 - June 30 budget year. The USD
1.452 billion budget rises 24 percent in nominal terms from
the last 12 month budget (the GOR instituted a six month
January-to-June 2009 bridge budget to span the old and new
budget years). With inflation now running at about 14-15
percent, the real budget increase is less dramatic. Musoni
noted the difficult economic trends worldwide, and said
Rwanda's 11.2 percent growth in 2008 was a "tremendous
performance." (The IMF and the GOR project a reduction in
growth this year to just over 5 percent - see reftel).
Musoni said he expected reduced demand for Rwanda's tea and
coffee, reduced income from tourism, and possibly reduced
budget support from donors. Nevertheless, he said, Rwanda
would fund important capital expenditures to develop key
physical infrastructure (including roads, energy generation
and distribution, and ICT projects). Agriculture, which grew
near twenty percent in 2008, will also receive significant
budgetary support, and key health and education projects will
also be pursued.


3. (SBU) Important development projects Musoni discussed in
some detail included: renovation of a number of "national"
roads; finalizing of studies for the proposed Bugesera
International Airport and for the Isaka, Tanzania to Kigali
railway link; extensive construction of waterworks around the
nation; completion of several electrical generation plants,
including the 27.4 MW Nyabarongo dam; several fisheries
projects; extensive fertilizer distribution; various seed
projects; and various cooperative development projects.
Health and education projects included: completion of various
hospitals and health centers; distribution of 1.3 million
mosquito nets; construction of 1,700 classrooms; distribution
of 100,000 student laptops; acquisition of 500,000 textbooks;
and various distance learning projects.



4. (SBU) Musoni also noted the commencement of the EAC's
Common External Tariff on July 1, which entails various

reductions in tariff levels and tariff income for the GOR,
and will result in a USD 21.5 million revenue loss. The GOR
will seek to cover this shortfall with an application to a
COMESA compensation fund, and an increase in
telecommunications "air-time" tariffs from three to five
percent (something the local telecomms companies grumbled
about immediately). A Finance Ministry contact told pol/econ
counselor the GOR's application to the COMESA compensation
fund would be the "first ever" by a COMESA government, with
the fund supposedly being underwritten largely by the
European Union. The GOR will also partially cover its
budgetary shortfall, estimated at USD 123 million (or 2.3
percent of GDP) said the Ministry contact, with a one-time
USD 42 million drawdown of Central Bank foreign exchange
reserves.


5. (SBU) Comment. The 2009-2010 budget sustains the GOR's
stated goal of pursuing economic development through improved
infrastructure, better schools and health care, and a more

productive rural sector. President Kagame's oft-stated goal
of reducing the size of foreign assistance is modestly
reflected in the fact that, for the first time ever, just
over half the budget is financed from domestic resources
rather than donor budget support. If Rwanda can weather the

world economic storm, and grow by five percent this year, it
will have turned in another remarkable, economic performance.
End Comment.



SIM