I. Introduction
1. Rwanda has embarked on an ambitious program of transition from conflict and emergency to peace and sustainable development. The overall objectives of the transition program are to lay the basis for national reconciliation, sustainable economic growth, human resource development, and the improvements of the standard of living of the Rwandans. Macroeconomic and structural reforms, improvements in justice and political governance, sustainable reintegration of the population, poverty reduction, and transformation of the economy are at the heart of this ambitious program. Given Rwanda's circumstances and recent history, the transition is complex. In June 1998, the Government adopted an economic reform program elaborated in the first post-genocide policy framework paper (PFP), prepared in collaboration with the staffs of the World Bank and the IMF. The program received strong support from multilateral institutions and some bilateral donors. The performance of this program so far can be judged as satisfactory. Rwanda successfully implemented and concluded the first-year ESAF with- the -midterm review completed in March 1999. This document focuses on the Government's program of policy and institutional reforms for the three-year period 1999/2000–2001/02.
II. The Transition from Emergency to Sustainable Development
2. The transition from conflict and emergency to sustainable development is complex and the process is not linear. It is, therefore, important that Government and donors take a long-term perspective. Despite a difficult regional environment, Rwanda is making steady progress in restoring peace, reconciling the nation, and rehabilitating administrative, judicial, and social institutions. The Government's prudent macroeconomic policies and the liberalization of economic activities have stabilized the economy and sustained its rapid recovery. Progress has also been made in the political and social fields. Local elections were held in March 1999, with a turnout of 95 percent. This was a promising first step to participatory democracy at grassroots levels and the empowerment of local communities for a stronger role in the development of Rwanda. The Government was reorganized in February 1999 to put appropriate emphasis on key development areas: land and resettlement, local government, decentralization, energy, natural resources and the environment.
3. The instability in the Great Lakes region and the limited availability of human and financial resources constrain the pace of the transition. Rwanda became militarily involved in the conflict in the Democratic Republic of the Congo (DRC) in response to the violent incursions of the interahamwe militia from the DRC that were costing lives and disrupting economic and social activities in the northwest of the country. The Government is committed to a diplomatic resolution of the conflict in the DRC and on July 10, 1999, Rwanda and the other countries involved in the conflict signed a cease-fire agreement that paves the way for a peaceful settlement of the conflict.
4. The complex socioeconomic problems of Rwanda stem from the structural constraints and conflicts that date back several decades, as well as the consequences of the 1994 genocide. The strategy for the transition needs to address these problems and their roots. The immediate challenges in the transition are to (i) provide assistance to victims and survivors of genocide, stabilize the lives of the "old-case" refugees, "new-case" refugees, and previously displaced persons by providing permanent shelter and settlement, as well as access to social services; (ii) accelerate justice, strengthening socio-political institutions, and increasing vigilance on human rights; (iii) rapidly revitalize agriculture and the rural economy and generating employment opportunities in urban economy; and (iv) raise the capacity of the Government to deliver essential services particularly in education, health, water supply and sanitation and law enforcement. The Government is dealing with these issues in the context of its longer-term vision for the country (see Box 1).
Box 1. Key Elements of the Government's Vision for the Future
The Government's longer-term vision encompasses the following elements :
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5. Economic recovery remained strong in 1998, reflecting favorable weather conditions, improvements in the security situation in Rwanda, acceleration of reform efforts, and prudent financial policies by the Government. Real GDP, which declined by 50 percent in 1994, rebounded by 34.4 percent in 1995 and 15.8 percent in 1996, and continued its rapid expansion in 1997 and 1998, growing by 12.8 percent and 9.5 percent, respectively. Inflation measured by the CPI was -6 percent in end-1998 compared with 17 percent at end-1997. In 1998, the current account deficit (excluding official transfers) and gross international reserves remained at about 17 percent of GDP and about six months of imports, respectively. The Rwanda franc depreciated in 1998 by 12 percent and 18 percent in nominal and real effective terms, respectively, but appreciated by about 10 percent in the first half of 1999.
6. The fiscal situation has improved significantly since 1995, mostly through a strengthening of tax and customs administration and the introduction of more rationalized tax measures. Government revenues as a percentage of GDP rose from 6.9 percent in 1995 to 10.3 percent in 1997, and 10.4 percent in 1998. The revenue performance in 1998 suffered from a 20 percent drop in receipts from import duties caused by a reduction in tariffs and a decline in imports. Despite the somewhat disappointing performance in its first year, the Rwanda Revenue Authority (RRA), established in 1998, is expected to improve revenue collection.
7. Regarding expenditure, concerns about security, the need to reintegrate and demobilize ex-combatants, and the requirement for internal and external debt servicing have constrained spending on the social and economic services essential for the transition. However, there has been progress in reducing security-related spending and the Government is committed to further reductions subject to improvements in the security conditions in the country and the region. As a proportion of GDP, it declined from 5.2 percent in 1996 to 4.3 percent in 1998, and is expected to be 4 percent of GDP in 1999, comprising 3.5 percent of GDP for the army and 0.5 percent of GDP for the recently established national police. The Government is also committed to increasing expenditure on the social sector. While recurrent social expenditure rose from 2.7 percent of GDP in 1997 (including 0.2 percent exceptional social expenditures) to 3.7 percent of GDP in 1998 (including 0.9 percent exceptional social expenditures), the spending remained below the 1998 budget target of 4.7 percent of GDP due to unanticipated security needs, delays in regularizing teachers, and shortfalls in external financing. In 1999, the budget allocations to the social sector were increased significantly to 5 percent of GDP (including 1.3 percent in exceptional social expenditures) and the Government is committed to safeguarding social spending and closely monitoring social sector performance. Spending in the first half of 1999 has been in line with the 1999 budget targets.
8. The Government has made good progress in structural reforms. External tariffs were progressively reduced and a new 25-15-5-0 percent tariff structure became effective on January 1, 1999. Rwanda streamlined and further liberalized the exchange regulations in late 1998, and accepted the obligations of Article VIII of the IMF's Articles of Agreement in December 1998, thereby formalizing the de facto convertibility of the Rwanda franc for current account transactions. A new commercial banking law providing for effective prudential regulation of commercial banks became effective in August 1999. The implemen-tation of the privatization program was accelerated in 1998 and the Government intends to complete the program in 2001. The coffee export tax was eliminated and the producer price for tea was increased by 37 percent in early 1999. The Government effected a significant differentiated wage increase (of about 45 percent on average) in early 1999, and adopted a new pay structure (including all monetized fringe benefits and a premium for the newly introduced health insurance for all civil servants). In February 1999, the Investment Promotion Act became effective, establishing a one-stop center to promote private investment, exports, and enterprise development.
9. The strategy for the next three years will put emphasis on national reconciliation and poverty reduction through (i) consolidating the progress made in the areas of reintegration, justice, governance, and transparency; (ii) revitalizing agriculture and the rural economy; (iii) focusing on human resource development; (iv) maintaining macroeconomic stability; (v) improving public resource mobilization and management; (vi) enhancing the institutional framework to help develop private sector activity and promote external competitiveness; (vii) strengthening institutional and administrative capacity; and (viii) promoting the diversification of exports and Rwanda's access to the sea; and (x) improving transport services and energy supplies and reducing housing shortages.
10. Macroeconomic framework and strategy for the period 1999–2002. The main elements of the medium-term macroeconomic program are to (i) achieve annual average real GDP growth rate of 5–6 percent a year; (ii) keep inflation at below 5 percent a year; and (iii) maintain the external current account deficit (excluding official transfers) at about 17 percent of GDP and the level of gross official reserves at a level of at least four months of imports c.i.f. Whereas the high growth rate in real GDP in 1995–98 was achieved by bringing existing capacity back into use, henceforth, sustained growth at the targeted rate would require a significant increase in investment, from 15½ percent of GDP in 1998–99 to 19½ percent in 2001–02. With government investment projected at about 9 percent of GDP, an increase in private investment from 8½ percent of GDP in 1998–99 to more than 10 percent in 2001–02 would be needed, as well as similar increase in private savings. Increases in investment and savings levels will depend on continued progress in restoring confidence in the economy, which, in turn, depends on the progress in national reconciliation, domestic and regional security, and structural reforms. Significant foreign aid, including assistance to reduce the external debt burden, will remain essential to enable Rwanda to achieve high and sustainable growth..
11. During 1999/2000-2001/02, the objectives of fiscal policies will be to provide adequate resources for poverty reduction, human resource development, and national reintegration programs, while keeping financial imbalances in check. Fiscal policies will focus on improving revenue performance; expenditure prioritization; and monitoring and controlling budgetary expenditure. Given the need for significant increases in social sector spending and other poverty-reduction budget priorities, the primary balance would shift from zero in 1998 to deficits of 0.7 percent of GDP in 1999 and 0.1 percent in 2000. The overall deficit (excluding grants) is projected to remain close to 11½ percent of GDP during 1999–2002.
Revenue12. Over the next three years, the Government aims to improve the revenue-to-GDP ratio by 2/3 of a percentage point each year by strengthening tax administration and improving tax policies while reducing the reliance on trade taxes. Capacity building programs will be continued in the Customs and Tax Departments of the RRA. New measures will be introduced to strengthen customs control, including through the increased use of preshipment inspection, the implementation of procedures to reduce fraud, and the strict monitoring of petroleum imports and transit trade. The large enterprise unit—combining the functions of assessment, collection, and audit—is being strengthened, and the assessment of small- and medium-sized enterprises for the presumptive turnover tax is being accelerated.
13. The coverage of the sales tax will be expanded and the remaining exemptions eliminated. The Government will limit import duty exemptions for nongovernmental organizations (NGOs) and diplomats. In the process, all statutory exemptions will be reviewed to ensure consistency with policies. To improve nontax revenue, the Government will reorganize local collection offices, based on an audit completed in September 1999. It is also accelerating efforts to collect tax arrears, debt service on retroceded debt, and dividends from public enterprises. The Government will introduce the value-added tax (VAT) in 2000.
Expenditure priorities14. Consistent with the revenue and savings targets, current expenditures will be contained at about 13 percent of GDP a year during the period 1999–2001, with rapidly increasing expenditures for social and other priority programs. This would be facilitated by containing the wage bill at about 4.8 percent of GDP, and reducing security spending to 3.7 percent of GDP in 2000 and to 3.3 percent in 2001, subject to improvements in the security situation and progress in the demobilization of soldiers (including reintegrated ex-FAR soldiers). The expenditure program will continue to place high priority on the social sectors and on the exceptional transition programs, including (i) the reintegration of returned refugees and displaced people, and assistance to the victims of genocide; (ii) demobilization/reintegration of soldiers; and (iii) the establishment of governance institutions. These exceptional expenditures are expected to increase from 0.9 percent of GDP in 1998 to 1.3 percent in 1999, and to 1.7 percent in 2000–01. The share of social spending in the recurrent budget (excluding exceptional social expenditure) is projected to rise from 25.2 percent in 1998 to 32.5 percent in 1999 and to 43.2 percent in 2001. Social spending as a percentage of GDP will rise from 2.8 percent in 1998 to 3.7 percent in 1999 and to 5.2 percent in 2001.
15. In addition to the social sectors and exceptional programs, and as part of its poverty reduction efforts, the Government will include outlays for justice, rural infrastructure, agriculture services and decentralization programs (see Sections VI and VII) as priorities in 2000. The Government is committed to progressively increase, in real terms, the budget allocations to the priority areas and to protect these budgets from cuts during the course of the budget year. The planned Medium-Term Expenditure Framework (MTEF) approach will enhance the linkage between policies and budget allocations and implementation.
Budget preparation16. The main objective of budgetary reforms in Rwanda is to move the focus of public expenditures away from inputs and toward the delivery of services and the outcomes of those services (e.g., primary school enrolment and literacy rate). The intention is to prioritize expenditures and raise the effectiveness of service delivery. The expected outcomes provide the link between public expenditures to the achievement of government objectives. A prior step in the process of linking expenditures to outcomes is to define the activities/programs that will deliver the latter (e.g., pre-service and in-service trained teachers and nurses; supplies of teaching aids, and supplies to hospitals and health centers).
17. The above approach, which is already under way in Rwanda, is consistent with program/activity-based budgeting, which is a key aspect of the MTEF. During 2000–02, the Government will progressively implement the MTEF. Accordingly, the budget process will require (i) a clear definition and costing of activities and programs; (ii) well-designed sector policies; (iii) expenditure targets by activities and programs for which performance indicators can be established; and (iv) tracking expenditure data by programs and activities so as to enhance transparency and accountability. The sector expenditure reviews will continue to be undertaken to assess ongoing activities in order to facilitate rational restructuring of expenditures and improvements in the organization of budget implementation activities. In this regard, further improvements in the coordination of work between the Ministry of Finance and the line ministries will need to be established.
Expenditure management18. Government will further strengthen expenditure control and treasury management to enhance efficiency and accountability, limit fiscal imbalances, and avoid any accumulation of domestic arrears. Based on an improved system of forecasting cash receipts and payments, funds will be released to spending ministries on a quarterly basis, provided resources are available. The staffing for budget management in ministries will continue to be strengthened while developing the capacity for internal auditing and control, and improving the management of the payroll. The Government, with technical assistance from the AfDB, is computerizing budget and treasury operations. The ongoing development of a system of public accounts (with technical assistance from the Fund and the AfDB), the operations of the Auditor-General's Office (established in mid-1999), and the transfer of bank accounts of ministries to the BNR, will enhance accountability and transparency and provide assurance that financial control systems are functioning adequately. The regulation and monitoring of government purchases by the National Tender Board will reduce fraud and improve the efficiency of resource use.
19. Monetary policy will aim at keeping the annual inflation rate below 5 percent. The monetary authorities will pursue a reserve money target, while closely monitoring developments in bank liquidity and broad money. The BNR will control monetary aggregates and influence interest rates through indirect instruments, i.e., the treasury bill auctions (commenced in late 1998) and money market operations on its own account. The Government intends to progressively replace the outstanding stock of consolidated debt held by commercial banks by negotiable treasury bills in the course of 1999–2000, so as to contribute to the development of a secondary market for government paper. Coordination between the Ministry of Finance and the BNR will be strengthened to ensure the consistency of the program's fiscal and monetary objectives.
20. The exchange rate will continue to be market determined, with the BNR's intervention in the exchange market confined to meeting the net foreign assets target and smoothing short-term exchange rate fluctuations, while not resisting underlying trends. To improve the functioning of the exchange market, the BNR will continue to communicate to economic agents the cost advantages of bank settlements instead of cash transactions (currently causing a premium for dollar bills), and develop a forward market, for which the regulatory framework was established in May 1999.
21. The Government intends to implement several financial reform measures during the period. The new banking law was promulgated in August 1999, followed by the issuance of key prudential and other regulations provided for under the law. The key banking supervision instructions will be introduced in the last quarter of 1999, and the other instructions in the course of 2000. Banks and other financial institutions will have to comply with these instructions by end-2000. The comprehensive audits of the five commercial banks were completed in mid-1999. Based on these audits, the BNR and the banks will agree on revised restructuring plans, which call for banks to reach 5 percent capital adequacy by end-December 2000 and be in full compliance with the minimum standards of capital adequacy (the 8 percent Basle standard) by mid-2002. The restructuring of the People's Savings Bank (UBP) is to be completed by end-2000. To improve the efficiency of recovery of nonperforming loans, the Government intends to streamline the judicial procedures and establish an accelerated recovery mechanism ("voie parée"). The private sector arbitrage center, established in May 1999, will also help in resolving commercial disputes, including between banks and clients. To reduce risks in the banking system associated with foreign currency transactions, the Government will strengthen the supervision of banks' net foreign open positions. A law setting up an Insurance Commission, to ensure adequate supervision of the insurance sector, is under preparation and will be submitted to the National Assembly by December 1999. The liquidation of the Caisse d'épargne and the liquidation or privatization of the Caisse hypothécaire are expected to be undertaken during 2000. The restructuring plan of the Caisse sociale du Rwanda (CSR)—based on the recently completed financial, legal, and organizational audits, and the consolidation of government debt to the CSR—is expected to be adopted by December 1999.
VI. Structural Reforms
22. Poverty worsened dramatically due to the genocide of 1994. The proportion of households below the poverty line,1 estimated at 40 percent in 1985, rose to 53 percent in 1993 and 70 percent in 1997. While the population has increased by more than 50 percent since 1985, the number of poor households, as defined in 1985, has more than doubled. The roots of poverty in Rwanda are fourfold: (i) the stagnation of the economy during 1986–94; (ii) the decline in agricultural productivity in the context of a rising population and diminishing land resources; (iii) the low level of human resource skills; and (iv) the impact of the genocide in 1994 that decimated the human resource base, confidence, and the economic and social infrastructure. Given the massive destruction of life and human resources and the predominance of rural poverty, a radical policy of human resources development and the revitalization of agriculture and the rural economy are necessary for tackling poverty in Rwanda. In the long term, creating nonfarm employment in rural areas and industrial and service jobs in urban settings, empowering the poor and vulnerable, increasing their access to social services, and protecting their human and legal rights are central to sustainable poverty reduction. The Government fully adheres to this agenda.
23. Since 1998, priority in budget allocations has been placed on basic social services and reintegration programs. However, certain economic services are also essential to increase the productivity and incomes of the poor and should be priorities in any anti-poverty program. Raising agricultural productivity and developing a market-based agricultural economy are key elements for improving rural incomes. Agricultural field services, particularly research and extension, to enable farmers adopt improved inputs and farming practices, are essential to raising agricultural productivity. Poor infrastructure is increasingly isolating the poor from the markets for their goods and services and hindering the development of a market-based agriculture. Poor people's participation in the development process and access to basic policing, the judicial system, and capacity building would contribute significantly to reducing poverty. With local elections successfully held in March 1999, the Government intends to deepen the democratic process, strengthen decentralization and support the grassroots initiatives. The Government will ensure that budget allocations to these key subsectors and activities receive priority and adequate funding from the budget.
24. During 1999, the Government, in collaboration with the UNDP, initiated work on the elaboration of a national poverty reduction strategy. This work will be accelerated, with the involvement of other development partners, including the World Bank, and wide consultations with civil society. Meanwhile, the Government is setting up a Poverty Observatory in the Ministry of Finance and Economic Planning that will work closely with other social sector ministries, including the Gender and Women in Development and the Social Affairs ministries, to monitor progress in meeting the targets on poverty and basic social indicators.
25. The acute lack of human capacity and poor health standards are major constraints to the effort to eradicate poverty in Rwanda. The Government is therefore putting very high priority on building the human resource base, with emphasis on education, capacity building, health, the development of women, and HIV/AIDS prevention. Debt relief from bilateral creditors (on Naples terms) and through the Multilateral Debt Trust Fund (MDTF) has made it possible to allocate more domestic budgetary resources to these priority sectors. Under the enhanced HIPC Initiative, Rwanda hopes to benefit from a significant further reduction in its debt burden, and allocate the resources thus freed to the social sectors and other pro-poor priorities.
Education and capacity building26. The genocide caused a heavy loss in human resource capacity and the destruction of social capital. It is urgent to educate and train Rwandese in order to meet the country's development challenges. However, low rates of access, poor quality, lack of trained teachers, inadequate teaching materials, and outdated curricula largely devoid of scientific and technical subjects characterize all levels of education. The illiteracy rate was estimated at 40 percent in 1996. The objectives for the education sector are to: (i) increase the net primary school enrollment ratio from the current 70 percent to 80 percent in 2000; (ii) achieve universal primary education by 2005; (iii) increase the transition rate from primary to secondary education from the current 20 percent to 30 percent in 2000 and to 40 percent in 2005, in particular by increasing access to secondary education in rural areas; and (iv) improve the quality and practical relevance of education at all levels, including through a stronger focus on education in science, technology, management, and vocational skills. The Government places priority on building capacity at all levels with emphasis on formal and nonformal continuing education, including adult education, particularly for women and rural dwellers.
27. To achieve these objectives, the Government intends to progressively raise the proportion of the budget allocated to education, including adequate funding for school infrastructure and for the provision of learning materials. The recently established Kigali Institute of Education (KIE), the Kigali Institute of Science and Technology, the establishment of teacher training colleges and the plan to establish one science-focused secondary school in each prefecture will further enhance these efforts. KIE graduates will teach in secondary schools and teacher training colleges, which will accelerate the training of primary school teachers. New curricula emphasizing the acquisition of relevant basic skills are being introduced into primary and secondary schools. To help assess the achievements of primary school children, a system of national examinations has been introduced. These efforts are in addition to ongoing programs to rehabilitate and staff primary, secondary, and tertiary institutions and thereby enhance access. The Government intends to adopt cost-recovery policies where possible, including through a system of student loans for tertiary education to be introduced in late 2000.
Following a social sector expenditure review undertaken in 1998, work is under way to prepare a comprehensive sector strategy and an expenditure framework that will ensure the efficient use of the increased budget allocations.
Health28. In the decade preceding the events of 1994, health standards had deteriorated as a result of the rapidly rising population, underfunding of public health programs, increasing incidence of drug-resistant malaria and AIDS, and growing food insecurity and malnutrition. Since the genocide, a functioning system of decentralized primary health care services delivery, a national drug distribution system and a flexible system of cost sharing have been put in place. Furthermore, community participation, information sharing, and education are being used to facilitate the delivery of primary health services, with special emphasis on public hygiene and other preventive practices.
29. As the emergency interventions by donors and NGOs are being phased out, the Government has been increasing the budget allocations to the health sector to meet the priority needs of the population within its limited resource envelope. The sector priorities are to strengthen the delivery of primary health care—vaccination, nutrition, water supply and sanitation, and prevention of malaria, AIDS, and other infectious diseases—and improve access to quality health care throughout the country. A key constraint in the health sector is the lack of adequately trained medical and nursing staff, especially in rural areas; the recently established Kigali Institute of Health (KIH) will provide training to health workers. In 1998, the Government carried out a health sector expenditure review; a health sector financing study is under way and an expenditure review of water and sanitation is to be carried out in late 1999. The results of these studies will be used to elaborate further the framework for the health, water, and sanitation sectors.
Gender and role of women30. Women, who constitute about 54 percent and 60 percent of the population and labor force, respectively, continue to face substantial constraints on their participation in the economy and society. They receive relatively poor rewards from economic activities due to discriminatory laws and practices that limit their access to education and training, formal employment, land, and credit.
31. The Government's program for the development of women consists of (i) eliminating all discriminatory legal provisions and institutional practices; (ii) improving water supply, health care, and home energy supply to reduce the constraint on women's participation in the labor market; (iii) raising access to formal and informal education, including training to build entrepreneurial capacity, and adult education and training programs for women in rural areas; (iv) strengthening women's organizations at national and grassroots level to take a lead role in educating women and defending their rights; (v) ensuring the participation of women in decision-making structures at all levels; and (vi) changing perceptions of women's role in the society through education and training. Effective participation by women in the design of these programs will give greater assurance that the long-term interests of women are protected.
32. The Ministry of Gender and Women in Development is charged with the mandate to bring about a positive change in attitude toward women and promote community-based organizations and programs that facilitate the empowerment of women. At the national level, the ministry is to ensure that the Government's programs and national laws reflect the interests of women and are consistent with the policy of empowering women. A review of the legal and other constraints to the development of women is under way. Specifically, a revised civil code, adopted by the National Assembly in July 1999, will provide for new matrimonial regimes that help to eliminate gender discrimination on inheritance and property rights. The proposed land law will also reinforce the rights for women to inherit and own land. Public education programs to ensure compliance with the revised civil code will be undertaken from late 1999.
HIV/AIDS33. The problem of HIV/AIDS, initially regarded as a health issue, has become, for countries like Rwanda, a major development constraint. Since the discovery of the first cases of AIDS in Rwanda in 1983, the infection has spread throughout the country. In Rwanda as elsewhere, AIDS prevalence is not uniformly distributed, with high rates among females between 25 and 34 years of age (20 percent infected), males between 40 and 49 years (18 percent), female prostitutes, people with sexually transmitted diseases, and military personnel. AIDS is far less prevalent than malaria or measles but its socioeconomic impact is greater. It affects primarily adults in their economically most productive years and creates large numbers of widows and orphans who become impoverished and a burden to society.
34. Despite the Government's efforts during the last 12 years—with support from its external partners—to monitor and stem the spread of AIDS, progress has been slow. This is in part due to the low level of human, material, and financial resources allocated to the health sector. However, to a large extent, slowing the transmission of HIV resides outside the realm of health services, and requires behavioral changes and the active involvement of many other actors. The Government will prepare a comprehensive multisectoral strategy and action plan for a renewed fight against AIDS and begin implementation of the plan by mid-2000. Meanwhile, the Government will further strengthen the AIDS Control Program and intensify the public education campaign on AIDS prevention, with active participation of civil society.
Population35. Rwanda's population, estimated to be 8.1 million in 1999, is projected to grow to 11.3 million in 2012, an annual average growth rate of 2.6 percent, compared with the current growth rate of 2.9 percent. This projection assumes that the total fertility rate will decline from 8.3 in 1997 to 4.5 in 2012. The main elements of the Government's strategy for reducing the population growth rate are information, education, and communication (IEC); promotion of education and access to social and economic opportunities for females; and improving the availability of contraceptives. The Government plans to conduct a population census in 2001.
36. For over a decade, agricultural productivity has been declining. This decline has demographic, environmental, and policy dimensions. The high population growth led to a rapid exhaustion of arable lands and the fragmentation and excessive use of farmlands. The degradation of the environment, the very limited use of modern inputs, and the loss of soil fertility reduced yields. Weak research and extension services and a policy environment that was not conducive to the development of agricultural markets contributed to the stagnation of the sector. The Government has now developed an agricultural sector strategy that will move farming from a subsistence activity to a market-based enterprise. The main elements of the strategy are to: (i) promote security of land tenure, improve land use, and encourage land markets; (ii) develop private sector-led markets for both inputs (such as fertilizer and seeds) and products; (iii) improve soil conservation and management; (iv) improve farming methods through research, extension and information services, and intensification of the use of modern inputs; (v) promote rural credit and other financial mechanisms for rural-based activities; (vi) promote the formation of farmers' groups and professional associations; and (vii) improve storage, markets, and farm-to-market roads.
37. In line with the strategy, a land law to ensure the security of land tenure, improve land use, and provide the framework for land markets to develop, is under preparation. To promote the adoption of modern inputs by farmers, the Government adopted, in 1999, a policy framework for market-based distribution of agricultural inputs, including fertilizer and seeds, and exempted agricultural inputs from sales taxes. The Government will adopt regulations for the distribution of inputs provided by donors and NGOs to avoid distorting the markets and ensure that the market-based input distribution system is sustained. On rural credit, the revised banking law authorizes the BNR to issue and amend prudential regulations for banks and nonbank financial institutions. This allows the BNR to enhance the regulatory framework for rural cooperative savings and loan associations.
38. Regarding infrastructure, the main and rural access roads have experienced a marked deterioration during the last four years due to excessive loads by relief-related vehicles and severe damage by flooding, more recently associated with the El Niño-weather pattern. Many households and communities, including new settlements, are thus isolated from the services and markets needed to improve their productivity and market their goods. The Government recognizes that the rehabilitation of roads and local market infrastructure would reduce isolation and link up these communities to larger markets.
Renewing natural resources39. The natural resource base of Rwanda—land, forests, wildlife, and water—has been an important source of household and national income, providing the basis for farming, fishing, energy production, and tourism. These resources have been degraded by excessive demand for them for agriculture and household energy, owing to high population growth rates and the lack of effective policies to preserve biodiversity. Environmental degradation has been a major factor in the decline of agricultural production. The genocide and the subsequent efforts to resettle displaced populations have accelerated the destruction of natural resources.
40. The Government believes that resettlement must be carried out in a way that does not further damage the resource base, and it attaches a high priority to resource restoration, protection, and effective management. In this light, it has recently established the Ministry of Lands, Human Resettlement, and Environmental Protection. The Government's strategy includes the creation of conditions for increasing nonfarm employment to relieve the pressure on the land and forests; the adoption of a land law that encourages efficient land use; the undertaking of environmental impact assessments of major sectoral projects; and the promotion of national consciousness on environmental issues. This strategy will be integrated into the review and update of the National Environmental Action Plan scheduled for 2001.
41. The strategy of the Government for private sector development is based on the following elements: (i) maintaining a stable macroeconomic framework and eliminating distortions in incentives; (ii) establishing a liberal and transparent legal, labor, trade, and tax framework for the private sector; and (iii) reducing business costs through the provision of infrastructure and public utility services at competitive costs. The Government is reviewing and revising business-related laws with a view to facilitating private business activity and improving the functioning of a market economy. Laws under revision include the labor code, the internal trade act, and the insurance law. A framework for a structured dialogue between the private sector and the Government is also being developed. In early 1999, the Investment Promotion Act became law, providing for the establishment of the Rwanda Investment Promotion Agency as a 'one-stop-center' for facilitating investments and establishing new businesses.
42. Small- and medium-size enterprises in urban and rural areas are likely to be effective employment generators. The Government is therefore taking specific steps to promote these enterprises through the restructuring of the rural savings and loans cooperatives, improvements in markets and transport infrastructure (particularly in rural areas), and the simplification of the licensing and taxation requirements.
Public enterprises and privatization43. The Government aims at a smooth and transparent privatization process while drawing lessons from experiences with public enterprise reform elsewhere. In the course of 1998, the implementation of the privatization program was accelerated and, as of September 1999, 20 enterprises have been privatized, 3 are under liquidation, and another 14 have been offered for sale. During 1999–2000, the Government intends to sell, bring to the point of sale, liquidate, or sell its minority shares in a cumulative total of 46 enterprises out of a divestiture program of 69. The main enterprises remaining to be privatized are the 9 tea factories and estates, the telecommunications monopoly (Rwandatel), and the energy/water/gas utility (ELECTROGAZ). The World Bank is providing assistance for the privatization of these enterprises. Specifically, the Bank has assisted the Government to prepare the regulatory framework for the telecommunications sector. Work is under way, with the assistance of the Bank, to prepare a restructuring plan for ELECTROGAZ, separating it into electricity, water, and gas companies, and to privatize certain functions during 1999–2001. The legislation to put in place the regulatory frameworks for the telecommunications and energy/water sectors will be presented to the National Assembly in the course of 2000.
44. To ensure the transparency of the privatization process, the Government will continue with the extensive advertising of enterprises for sale, public opening of bids, and intensive media campaigns to inform the public about the privatization process. The privatization of public enterprises is hampered by the lack of qualified manpower and resources to deal up front with the labor consequences. The Government also sees the need to widen and increase ownership by Rwandese. For these two reasons, the Government proposes to put in place a scheme to reintegrate retrenched workers and set up a Privatization Trust Fund to enhance wide ownership of privatized firms.
45. The Government is concerned that the current macroeconomic stability is based on increasing external aid and not growth in exports. With export receipts that cover only about 20 percent of imports and an external current account deficit at about 17 percent of GDP, Rwanda is highly dependent on external aid. A rapid expansion of exports is needed to reduce this dependence. The Government's medium-term strategy for export expansion is to revive traditional exports, encourage foreign and domestic investment in high value-added export production, and reduce international transport costs.
46. The Government has initiated substantial reforms in the tea and coffee sectors, with a view to increase production for exports and enhance rural cash incomes. The producer price of tea was increased by 37 percent in February 1999. The privatization of the tea factories and estates managed by OCIR-Thé2 will begin by end-1999. The Government will also adopt by March 2000 a new regulatory framework for the tea sector, including a revision of the legal mandate of the Rwanda tea board (OCIR-Thé), converting it into an entity responsible for regulating, promoting, and monitoring the performance of the tea sector. The coffee export tax was eliminated in early 1999, removing a major impediment to growth and investment in the sector. The Government is actively consulting with the stakeholders (coffee farmers, farmers associations, traders, processors, and exporters) to draw up a comprehensive strategy to revive the coffee sector. This will include the reform of the Rwanda coffee board (OCIR-Café)3 into an industry-based organization, with its mandate limited to regulation, monitoring, and promotion, including research and possibly the provision of extension services. The Government will encourage the formation of coffee farmers associations to facilitate communication with farmers and enhance the distribution and adoption of improved seedling and other inputs in remote regions.
47. Rwanda has a good potential for nontraditional exports, including manufactures for regional markets, mineral products, and high-value horticulture. The Government recognizes that the diversification of exports will require sustained efforts to create a friendly environment for private investment. The establishment of the Rwanda Investment Promotion agency, to promote and facilitate investment, exports, and business development, is expected to give a boost to the export sector. The mining code is being revised to attract investment to the sector and boost its exports. The eventual acceptance of Rwanda into the East African Community, comprising of Kenya, Tanzania, and Uganda, will hasten the integration of the Rwandese economy into the larger COMESA regional markets.
48. The Government of Rwanda recognizes that to deliver its programs it has to reorganize the public administration in order to improve its efficiency, effectiveness, transparency, and accountability. In February 1999, the ministerial tasks were regrouped, increasing the number of ministries from 18 to 21, to emphasize key development priorities (land reform and resettlement, gender and women issues, energy and natural resources, and decentralization and local government). In October 1999, the Government adopted new organizational structures for all ministries, in line with their respective missions, as well as a new job classification and grading system for all civil servants. This will provide the basis for the rationalization of positions in the civil service, ensuring that responsibilities are consistent with qualifications and grading. The authorities—with technical assistance from UNDP—will finalize the job descriptions and assign all eligible staff to positions in the new structure, consistent with their qualifications by end-1999.
49. In late 1998, a census of civil servants was undertaken to help complete the process of removing ghosts from the payroll and provide the database for the further rationalization of functions, posts, and remuneration of the civil service. The Government will, in the course of 1999/2000, retrench any remaining unqualified staff with an appropriate severance and retraining package and selectively recruit qualified staff, consistent with an overall target of 9,500 for the core civil servants (excluding teachers) and with the need for meeting priority needs in the health and justice sectors. The Government fully realizes the social consequences of retrenchment and is looking for donor assistance to finance the reintegration of retrenchees into the labor market and business activities.
50. Regarding payroll management, the Government has recently regularized the status of about 7,700 civil servants (mostly teachers) without proper contracts and therefore not on the payroll. A central computerized civil service database—a key instrument for effective control of the size of the civil service and payroll management—was established in April 1999, with technical assistance from UNDP. A similar system for maintaining employee career records will be set up by March 2000. To increase the capacity of the institutions charged with public accountability and fiscal transparency (i.e., the National Tender Board (NTB) and the Office of the Auditor-General), the Government is receiving a World Bank grant to support the NTB and is seeking support from bilateral donors for the Office of the Auditor-General.
51. The next stage of reforms of public administration will concentrate on sustaining and deepening the efficiency improvements, including contracting out noncentral civil service functions to the private sector, and carry out institutional reforms to establish a civil service that operates on the principles of competency, accountability, transparency, and is outward looking and service/goal/results oriented. The Government will develop in 2000, and in consultation with civil society, a vision for the next stage of reforms of public administration.
52. Rwanda's geographical location and poor transport facilities constrain its participation in the regional and global economy. Transport costs are very high because of the distance to the sea, as well as to inefficiencies and structural inadequacies in the current transportation arrangements. The recent introduction of axle-load weight limitations in Kenya and Uganda has drastically raised import costs and adversely affected import volumes. To bring down transport costs, enhance Rwanda's integration into the regional and global economies and develop its role as a regional trade center, the Government intends to privatize utilities and transportation facilities and diversify the routes to the sea, particularly through the central and southern corridors. The Government is considering a number of options including a railway from Kigali to the Tanzania rail terminus at Isaka and/or to Lake Tanganyika.
53. On the domestic infrastructure, it is increasingly urgent to deal with the marked deterioration of main arteries and rural roads damaged in the last four years. The Government will seek donor assistance for the rehabilitation of the main and feeder roads, which are essential for agricultural and trade development. It will promote an efficient private sector-based rural transport system and, in this context, encourage the reestablishment of transport cooperatives in rural areas. As previously noted, the Government will privatize Rwandatel and establish a regulatory framework that would liberalize the telecommunications sector and attract private investment. The Government, given its capacity constraints, is considering a multisector regulator to avoid a proliferation of industry-specific bodies.
Water and sanitation54. Access to potable water was identified by both rural and urban dwellers as the highest priority public service. Women, many of whom have become household heads, spend a large part of their day in obtaining water, which considerably constrains their time available for income-earning employment. The Government's strategic framework for water supply in rural areas requires strong community participation in water delivery. It gives priority to capacity building to enhance community participation and the technical skills of operators, and to reinforce planning and management by the municipalities and central administration. For water supply in the urban areas, the break-up of ELECTROGAZ, leading to a privately managed water supply and sanitation company, is a priority. For urban sanitation, the priority is to build the institutional capacity of urban administrations to effectively manage sanitation services. The Government seeks to improve the population's awareness of the importance of water conservation and sanitation through information and educational programs.
Energy55. The objectives of the Government in the energy sector are to expand and diversify energy supplies at competitive costs, promote the efficient utilization of Rwanda's energy resources, and minimize the potential adverse environmental impacts. The immediate priorities in the energy sector are to (i) rehabilitate key power facilities; (ii) restructure and privatize the part of ELECTROGAZ that supplies and distributes electricity and gas so as to improve its operational efficiency; (iii) build capacity for policy development and investment planning in key subsectors such as gas, hydropower, petroleum products, rural electrification, and renewable energy; and (iv) promote the regeneration of forest resources damaged during the emergencies in the country.
56. The Government is preparing a strategic and regulatory framework to address both urban and rural energy needs and to encourage private sector energy provision and distribution. This strategy will emphasize the efficient use of sustainable energy sources based on natural resources. Therefore, it envisages the reduction of the use of wood, particularly in urban areas, including by encouraging the use of more efficient stoves. The Government aims to promote private investment for harnessing the methane gas reserves in Lake Kivu. For that purpose, it has just created a Natural Gas Promotion Unit in the Ministry of Energy. The expansion and regeneration of forest resources is also an important element of the strategy. The Government, in collaboration with the World Bank, will carry out, in 2000, a review of the energy situation in Rwanda, with particular emphasis on rural energy needs and supplies.
Housing and urban development57. Providing assistance for permanent shelter to returnees ("old-case" and "new-case" refugees), victims of genocide, and other vulnerable persons remains a priority. In the rural areas, the assistance will enable the affected populations to construct and/or rehabilitate their own houses. The housing and social services shortage in urban areas is acute. The population in Kigali and other urban centers has more than tripled since 1994 and demand for housing and other urban services has increased dramatically, overtaxing the ability of the urban administrations. The Government is placing priority on strengthening the capacity of urban communities to provide social services and facilitate the provision of housing by the private sector. A cadastre and land-titling system will be developed to improve the functioning of land and housing markets in urban areas. The Government will also prepare and adopt a Land Use Master Plan, including a sites and services program, for Kigali and other urban areas, and will design and implement water supply and sanitation systems with an appropriate institutional structure to ensure sustainability.
VII. Social and Economic Reintegration and Reconciliation
58. In February 1999, the Commission for National Unity and Reconciliation was established to conduct a broad dialogue in the country, rebuild the society, and facilitate the coexistence of Rwandans. There are five key components of the reconciliation task: (i) stabilize the lives of returnees and previously displaced people and help them build sustainable livelihoods; (ii) assist the victims of genocide and other vulnerable groups; (iii) reintegrate demobilized soldiers in civil society; (iv) carry out expeditiously the trials of the detained genocide suspects; and (v) carry out a political transition in accordance with the principles of the Arusha Accord. Furthermore, the reform of the economy to create the conditions for high and sustained economic growth, reduce poverty, open up economic opportunities to all Rwandese, and improve economic governance, will reinforce the efforts on national reintegration and reconciliation.
59. In the last five years, the international community supported the resettlement and reintegration of households displaced by the genocide and its aftermath. However, substantial needs remain, with over 150,000 households, including those recently resettled in the northwest, without permanent shelter. Furthermore, the return of refugees from the DRC is continuing. International humanitarian and developmental assistance is required to permanently resettle these people and assist them to engage in income generating activities.
60. The genocide created other victims and vulnerable groups who require assistance to rebuild their lives: orphans and unaccompanied children, widows, elderly without close family to care for them, and many mentally or physically handicapped. The Government will continue to contribute 5 percent of budgetary revenue to the Fund for Assistance to Genocide Survivors. The fund assists victims with shelter, education, medical care, social rehabilitation, and income-generating activities. In addition, the fund raises public awareness of the plight of the genocide victims and assists them in exercising their human and property rights. The program is implemented with the active participation of beneficiaries and relies on existing structures, including ministries, associations and NGOs, and social development committees. The Government is seeking additional financing for the fund from other domestic and foreign sources.
61. The Government demobilized about 8,600 soldiers in 1997–98 in the first two phases of the demobilization program, as well as about 2,500 children soldiers. In 1998, about 10,000 ex-FAR were absorbed into the Rwanda Patriotic Army (RPA) in accordance with the Arusha Accord, which has necessitated a revision of the original demobilization plan. In the revised plan, the number of soldiers to be demobilized was increased from 17,500 to 25,000 in a total of four phases ending in 2002. The next and third phase of the plan, involving 11,400 soldiers, is to be implemented during 1999–2000. The demobilization program provides assistance for resettlement and long-term economic and social reintegration. Vocational training centers have been established under the Rwanda Demobilization and Reintegration Program (RDRP) to provide training in various skills to demobilized soldiers and small-scale subsidized credit scheme, with an initial fund of US$0.6 million (largely financed by donors), has been put in place at a commercial bank. The Government is seeking further donor financial support to implement these programs.
62. Ensuring justice and the rule of law is critical to ending the "culture of impunity," enhancing national reconciliation, and enabling a smooth transition to a peaceful and democratic Rwanda. In 1998–99, significant progress was made with putting in place the institutional framework to advance justice and governance. In 1998, the Government decided to release 10,000 detained genocide suspects whose cases lacked strong evidence of guilt, and, in 1999, the National Assembly approved a bill permitting the use of traditional methods of justice (gacaca) to clear the bulk of the cases. This will involve community-level councils adjudicating cases and using community service as the main punishment for the guilty. To strengthen respect for human rights in the society, in June 1999, the Government established a Human Rights Commission, to monitor human rights developments and to educate Rwandans in the observance of human rights, including through new curricula being developed for schools. The Government is giving priority to capacity building for the justice system, and has set up national civilian police to replace the paramilitary gendarmerie in law enforcement.
63. In late-1999, a Commission on Legal and Constitutional Affairs was established to propose the political arrangements for a democratic Rwanda. Meanwhile, local elections were held during March 28–30, 1999 to promote popular participation through decentralized democratic institutions. The Government is committed to a free and independent press; the draft legislation to this effect is under discussion with the active participation of the major stakeholders. The Government, with the assistance from the World Bank, has organized two seminars on corruption, and is preparing Public Disclosure Rules for civil servants and elected officials and a Code of Conduct for the civil service.
VIII. Statistical Issues
64. Deficiencies in many areas of Rwanda's macroeconomic and financial database continue to complicate the monitoring of economic developments, the formulation of timely policy responses, and the implementation of economic reforms. Since 1994, the Government has made significant efforts to rehabilitate Rwanda's database with extensive technical assistance from external agencies, but further improvements are needed in several areas. Particular emphasis will be put on the quality and timeliness of social statistics (through household surveys and social indicators); the coverage of balance of payments statistics; the consistency and timeliness of the monetary survey; and the quality of national accounts and price statistics. The Government is undertaking an urban household survey and is planning a rural household survey and a National Census to be undertaken with donor support in 2000 and 2001, respectively.
IX. External Financial Requirements and External Debt
65. Rwanda's balance of payments is expected to remain weak during 1999–2002, and exceptional financing will therefore be required. Taking into account the potential impact of the external policies that have been undertaken thus far in 1999 and structural reforms to be implemented in the coffee and tea sectors, export volumes are expected to rebound in 1999–2002 after weak performance in 1998 which was aggravated by the decline in international coffee and tea prices. After a drop in 1999, import volumes are projected to increase at an annual average rate of about 7 percent, reflecting in part public investment-related imports.
66. Based on these projections, the external current account deficit (excluding official transfers) is expected to average about 17 percent of GDP a year during 1999–2002. Taking into account scheduled amortization, repayment of external arrears, and the objective of maintaining gross official reserves above four months of imports, the financing requirements for the period 1999–2002 are projected at US$1.7 billion. This total is expected to be met through project grants (about US$450 million), project loans (US$250 million), and nonbudgetary official transfers (mainly humanitarian assistance, estimated at US$350 million), leaving a residual financing gap of some US$600 million. This gap is expected to be covered through IMF disbursements; debt relief from the Paris Club already obtained (on Naples terms, covering the arrears at end-June 1999 and current maturities from July 1998 to end-May 2001 on debt contracted before end-1998); at least comparable debt relief from non-Paris Club official bilateral and commercial creditors; concessional refinancing from certain multilateral creditors; budgetary support from the World Bank, AfDB, European Union, and other multilateral creditors; and assistance from bilateral donors.
67. Rwanda's external debt at end-1999 is estimated at approximately US$1.3 billion, equivalent to just over 60 percent of GDP. Over two-thirds of the debt is highly concessional and owed to multilateral creditors. Nevertheless, Rwanda faces a burdensome external debt, and—after flow rescheduling and a hypothetical stock-of-debt operation from Paris Club and non-Paris Club creditors—the ratios of debt service-to-exports and of the net present value of debt-to-exports are projected to remain at around 30 percent and 500 percent during 1999–2002, respectively. On this basis, the Rwandan authorities are seeking debt relief under the enhanced HIPC Initiative. The external debt units in the Ministry of Finance and the BNR are being strengthened in order to ensure the timely production of adequate external debt statistics with technical assistance from UNCTAD. Moreover, the debt monitoring committee, which includes representatives of the Ministry of Finance and the BNR, is monitoring external debt developments, reconciling debt figures, and providing regular debt updates to relevant government agencies.
X. Technical Assistance Requirements
68. During 1999–2001, Rwanda will need further improvements in capacity and institution building, especially in the areas of macroeconomic and fiscal management, economic, financial, and social statistics, public administration and governance, and privatization and private sector development. These improvements will require effective collaboration between the Government and the international community in coordinating capacity-building efforts in the Ministry of Finance, the BNR, the Ministry of Public Services, the programming and budgeting units of the line ministries, and the new governance institutions including the Office of the Auditor-General, the National Tender Board, and the commissions for national reconciliation, human rights, and constitutional and legal affairs. The program for technical assistance in the macroeconomic management area, in place since 1995, has been updated, and priorities have been established. With a view to improve the utilization of technical assistance experts, especially in the designing, funding, staffing, placement, and supervision of the technical assistance programs, the Government has established a technical assistance steering committee, composed of senior staff from the line ministries and a support unit within the Ministry of Finance. In the fiscal area, the IMF is providing three long-term resident experts for tax policy, budget preparation, and treasury operations; the UK-DFID is providing support for tax administration within the RRA; and the AfDB is assisting in the development of public accounts, the computerization of budget and treasury operations, the preparation of public investment projects, and national accounts and price statistics. In the monetary and banking area, the IMF is providing a long-term advisor to the governor of the BNR and short-term technical experts in banking supervision, and foreign exchange market operations. On civil service reform, the authorities are receiving technical assistance from the World Bank and UNDP. The latter is also providing assistance in the areas of privatization and private sector development..
