Budget: Government expenditure slashed, salaries rise
Finance Minister John Rwangombwa on Thursday appeared before Parliament to announce a cautious but relatively generous budget for the fiscal year 2012/2013 amidst global economic hardships.
Rwangombwa said the budget and economic policy framework has been prepared under ‘very serious downside risks on the international outlook’ for 2012 causing weak global demand, lower commodity prices as well as high oil prices.
Like in the neighboring economies, it is feared the situation will slow down GDP growth which was at 8.6% in 2011, better that the projected 7%.
“There is no doubt that these factors will affect domestic macro-economic conditions; they not only present challenges but also opportunities for the economic and social progress of the country,” Rwangombwa said.
Indeed, Rwangombwa’s second budget was a mixture of subtractions and additions prioritizing increased revenue mobilization to find resources for needs of poor districts and workers’ salaries.
First to take the cut was the budget for government expenditure on goods and services which has been reduced from Frw 148.4 billion in 2011/12 by Frw 20.9 billion to Frw 127.5 billion. The Minister said the move is aimed at generating some savings for the partial increase in wages and salaries.
Yet he was quick to point out that the reduction will not compromise general service delivery in the public sector in 2012/13 as it’s expected to affect only non-essential items such as office supplies including stationery, gifts, entertainment expenses, and expenditure associated with public relations like trips abroad, conferences and meetings.
The beneficiaries will be civil servants whose envelope got an additional allocation to cater for a pay rise after the Minister said expenditure under transfers and subsidies will be raised from Frw 223.9 billion in 2011/12 to Frw 266.2 billion in 2012/13, or an increase of Frw 42.3 billion.
“Frw 7.6 billion of the amount will be used to increase the wages and salaries of the public servants under transfers in line with the pay and retention policy,” clarified the Minister.
Teachers especially will benefit as this allocation includes a contribution of Frw 5 billion to the Umwalimu Sacco Teachers’ Cooperative to improve teachers’ welfare. “This amount will increase the capital stock in order to allow more teachers to benefit from personal loans to supplement the increase in salaries,” Rwangombwa said.
Increasing salaries and making other such concessions at a time when resources are scarce would be frowned upon by many, a good example being Uganda where despite teachers’ demands to raise their salaries, the government refused saying the hard times make it possible.
However, considering that the Umwalimu Sacco has over 60,000 members, making more credit available to them will only mean their spending capacity will be boosted hence increasing the country’s domestic consumption of goods and services.
Fighting poverty and job creation
The fiscal year 2012/13 is the final year of implementation of the EDPRS since the fiscal year 2008 and Rwangombwa explained that It was envisaged at commencement of EDPRS implementation that the government would make a total investment of Frw 3,436 billion to achieve EDPRS targets.
In the next budget, priority has been given to infrastructure development with an allocation of Frw 321.2 billion equivalent 23.3% of the total budget, which represents a 25% increase compared to the 2011/12 budget. The allocation will benefit construction of several roads including rehabilitation of the 77.8 km Kigali-Gatuna road which will boast bilateral trade with Uganda.
To respond to the investment needs for growth this year, private sector credit is projected to grow by 18.4% a move that could mean more jobs created in production or service sectors. The minister indicated that at end of April 2012, total credit to the private sector amounted to Frw 572.8 billion showing an increase of 12.4% from Frw 509.8 billion at end 2011.
But even when government is keen to increase private sector access to credit, the Minister stressed that there is a need to protect Rwandan banks from going bankrupt as was the case in America and recently in Spain banks where massive bail-outs have been announced to revive their liquidity.
This, Rwangombwa said, will be done through, “BNR closely monitoring the strategies of the financial institutions in order to reduce the level of non-performing loans (NPLs) of lending institutions as well as report and use credit information supplied by the credit bureaus.”
Project loans are estimated to increase to Frw 126.4 billion up from Frw 75.4 billion in 2011/12 making possible chances of more jobs being created.
Budget funding and tax revenues
With the aim of reducing donor dependency, tax revenue projected at Frw 1385.3 billion will remain the main source of funding for the budget accounting for 52.6% from 47.3% in 2011/12.
However, the overall cash deficit is projected at Frw 137.3 billion which is higher than the Frw 77.1 billion estimated for the 2011/12 budget.
Government’s domestic debt will rise to Frw 184.1 billion by end of June 2013 from Frw 175.4 billion at end June 2012.
Among new taxes, tax rates for imported construction materials will be raised by 5% on average on import duties, VAT and excise duties. Gaming tax has also been introduced to target sports betting.
In a give and take approach, the new salaries for civil servants will not escape taxation as they are expected to raise almost Frw 10 billion.
Enterprises with a turnover between Frw 12 million and Frw 50 million pay a flat tax rate of 3% instead of 4% per annum.
“We expect that at end of fiscal year 2012/13, most, if not all, the EDPRS targets will have been met,” concluded the Minister.
See also: Rwangombwa’s full budget speech. (PDF)