By Jenny Clover
KIGALI (Reuters) – Rwanda’s economic growth could be hit if donors fail to reinstate aid payments, with the economy only able to withstand the stoppage until the end of the year, the country’s finance minister said on Friday.
The United States, Sweden and the Netherlands have all suspended some aid to Rwanda, which relies on donors for about 40 percent of its budget, over a U.N. report accusing the central African nation’s defence minister of commanding rebels in neighbouring Democratic Republic of Congo.
In September, the European Union froze further budgetary support to Rwanda. .
Another donor, Britain unblocked part of its cash in September, praising Rwanda for constructively pursuing peace.
John Rwangombwa, minister for finance and economic planning, told Reuters in an interview that he was at present unconcerned about the impact of the aid suspensions, but that if they persisted into next year, they could start hurting the economy.
“We think by the end of this year we should have resolved these issues of the donors. If it doesn’t go beyond December it won’t affect us, if it’s prolonged that’s when we will have effects,” he said.
“There’s the possibility of slowing down our economic growth because the government is part of the major players in this economy. It depends on the magnitude of the prolonged delay.”
The minister did not quantify the likely fall in growth.
Rwanda’s central bank says the economy will grow 7.7 percent this year. Output grew by 9.4 percent in its fiscal year ended June from 7.4 percent previously, thanks to robust growth across all sectors.
Like other countries in the sub-Saharan Africa region, the landlocked country has recorded robust economic growth rates in recent years, on the back of increased investments and consumption.
On Monday ratings agency Standard and Poor’s downgraded its outlook for Rwanda to stable from positive, citing the weakening in its external environment due to suspension or delay in disbursing aid.
It was the only country in east Africa that did not suffer last year from soaring inflation and steep currency weakening, faring better than its larger neighbour Uganda.
Rwanda receives about 40 percent of its budget from donors.
Rwangombwa said the only impact the aid suspensions have had so far was on the exchange rate and the delaying some expenditure programmes.
He said they had been working with the World Bank and the African Development Bank to explain the situation to donors, adding he expected the budget to be financed entirely by local resources within five years.
Five years ago, aid contributed 63 percent of the budget and that while the nominal value of donor funding had increased in recent years, its proportion has been decreasing, the minister said.
“I see in the next five years it should have gone down to around 20 percent. What we are doing in terms of increasing our development and our private sector, is we are widening our tax base,” he said.
“If minerals works out well, well and good, that will be a windfall and we will be happy to have that. But the main source of revenues is expected to be widening the tax base.”