Rwanda to raise budget spending to spur economic growth

* WHAT: Rwanda’s 2011/12 budget

* WHEN: June 8

* Spending seen rising 16.7 percent

By Kezio-Musoke David

KIGALI, June 6 (Reuters) – Rwanda plans to raise spending by 16.7 percent in its 2011/12 (July-June) budget this week to step up economic growth in the central African country.

The landlocked coffee and tea producer of 11 million people has been attracting a steady stream of investors and firms drawn by a small but growing market which welcomes foreign investors.

The country plans to spend 1.116 trillion Rwandan francs ($1.9 billion) in the next fiscal year, up from 984 billion in 2010/11, with 40.8 percent expected to be financed by donors, Finance Minister John Rwangombwa told parliament recently.

Ministry officials said fiscal policy in the next three years would seek to balance the competing objectives of faster growth to reduce poverty and the maintenance of sustainable fiscal and external positions over the medium term.

“The medium-term budget policy is to increase expenditure for investment projects that generate more impact on growth, while limiting recurrent costs,” Rwangombwa said.

Growth in economic output is projected to slow to 7 percent this year due to rising food and fuel prices which are expected to push the inflation rate to 7.5 by the end of 2011.

The economy expanded by 7.5 percent in 2010, up from 6.1 percent in 2009, thanks to increased investment in the communications sector, as well as recovery in trade and tourism.

TAX REFORMS?

Donors have raised funding pledges for the 2011/12 budget by 83 billion francs with overall donor budget support estimated at 455.5 billion francs to help spur growth the private sector.

Rwanda is one of the continent’s biggest per capita aid recipients with almost 50 percent of the country’s budget spending funded by donors in the past.

Rwangombwa said total domestic revenue is projected to be 538.4 billion francs with tax revenues expected to contribute 510.4 billion francs.

The country’s Private Sector Federation has welcomed the government’s plan to spend 242.8 billion francs, about 21.7 percent of the total budget, on infrastructure alone.

The federation said the government should consider tax reforms as well to help create a vibrant private sector.

“We suggest the reduction of excise duty on beers with significant local raw materials from 60 percent to 20 percent,” Robert Bayigamba, chairman of the foundation said.

He also said that to support the local insurance industry, value added tax charged on insurance premiums should be cut.

His foundation favours a widening of the tax base by roping in small and medium firms, to unlock more funding for the country’s development goals.

“The private sector is ready to scale up its contribution in a significant way in the next decade,” Bayigamba said. (Editing by Duncan Miriri, Ron Askew)

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