Language: English

Original: English

PROGRAMME : Poverty Reduction Strategy Support

Programme (PRSSP-III)

COUNTRY : RWANDA

APPRAISAL REPORT
Date: March 2009

Team Leader Charles Muthuthi, Chief Financial Economist, OSGE.2

Team Members Leonard Rugwabiza, Macroeconomist, RWFO
Chukwuma Obidegwu, Consultant, OSGE.2
Appraisal Team
Sector Manager Marlène Kanga, OSGE.2
Sector Director Gabriel Negatu, OSGE
Regional Director Aloysius Uche ORDU, OREA

Pietro Calice, Senior Investment Officer, OPSM

Loxly Epie, Senior Financial Management Specialist, ORPF.2
Peer Reviewers Wilberforce Mariki, Senior Country Economist, ORSA
Carlos Mollinedo, Senior Country Economist, ORSB
Jian Zhang, Principal Macroeconomist, ONRI
 TABLE OF CONTENTS
Page

Currency Equivalents, Acronyms and Abbreviations, Grant Information…………………………ii-iv

Executive Summary ................................................................................................................................ v
Results Based Logical Framework .......................................................................................................vii
I. THE PROPOSAL ................................................................................................................................ 1
II. COUNTRY AND PROGRAMME CONTEXT................................................................................. 1
2.1 Government’s Overall Development Strategy And Medium-Term Reform Priorities.............. 1
2.2 Recent Economic And Social Development, Perspectives, Constraints And Challenges ......... 2
2.3 Bank Group Portfolio Status...................................................................................................... 6
III. RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILITY......................................... 6
3.1 Link With The CSP, Analytical Underpinnings And Country Readiness Assessment ............. 6
3.2 Collaboration And Coordination With Other Donors................................................................ 7
3.3 Outcomes And Lessons From Past Similar Operations ............................................................. 7
3.4 Relationship To Other Bank Operations.................................................................................... 8
3.5 Bank’s Comparative Advantage ................................................................................................ 9
3.6 Application of Good Practices Principles On Conditionality .................................................... 9
IV. THE PROPOSED PROGRAM AND EXPECTED RESULTS ....................................................... 9
4.1 Programme’s Goal And Purpose ............................................................................................... 9
4.2 Programme’s Pillars, Operational Objectives And Expected Results ..................................... 10
4.3 Financing Needs And Arrangements ....................................................................................... 16
4.4 Beneficiaries Of The Programme ............................................................................................ 17
4.5 Impact On Gender.................................................................................................................... 17
4.6 Environmental Impact.............................................................................................................. 17
V. IMPLEMENTATION, MONITORING AND EVALUATION...................................................... 17
5.1 Implementation Arrangements................................................................................................. 17
5.2 Monitoring And Evaluation Arrangements.............................................................................. 18
VI. LEGAL DOCUMENTATION AND AUTHORITY ..................................................................... 19
6.1 Legal Documentation............................................................................................................... 19
6.2 Conditions Associated With Bank’s Intervention.................................................................... 19
6.3 Compliance With Bank Policies .............................................................................................. 20
VII. RISKS MANAGEMENT.............................................................................................................. 20
VIII. RECOMMENDATION ............................................................................................................... 21
Appendix I: Letter of Development Policy ............................................................................................................. 22
Appendix II: Operation Policy Matrix for Poverty Reduction Strategy Support Programme (PRSSP-III) .......... 31
Appendix III: Comparative Socio-Economic Indicators......................................................................................... 35
Appendix IV: Attainment of the MDGs and National Development Targets ........................................................ 36
Appendix V: Macroeconomic Framework – Summary Indicators, 2008-2011/2012............................................ 37
Appendix VI: Analytical Underpinnings for the Poverty Reduction Strategy Support Porogramme III .............. 38
Appendix VII: ADB’s Portfolio in Rwanda............................................................................................................ 39
Appendix VIII: IMF Country Relations Note ......................................................................................................... 40
Appendix IX: Map of the Project Area ................................................................................................................... 44
TECHNICAL ANNEXES – Available Separately
 Page
BOXES
Box 1: Impact of the Global Economic Crisis on Rwanda’s Economic Prospects 4
Box 2: Summary of Lessons Learnt 8
Box 3: Purpose of PRSSP-III 10

GRAPHS
Graph 1: Recent Economic Outcomes 2
Graph 2: Human Development Index 5

TABLES
Table 1: Selected Economic Indicators 3
Table 2: Balance of Payments 3
Table 3: 2009 Ease of Doing Business (Africa) 11
Table 4: Selected PFM Performance Scores for Rwanda 13
Table 5: PRSSP III Required Prior Actions (By End March 2009) 16
Table 6: Financing Government Expenditures 16
 Currency Equivalents
As of March, 2009

1 Unit of Account (UA) = RWF 852.428

1 Unit of Account (UA) = USD 1.46736
I USD = RWF 580.926

Fiscal Year
January 1, 2009 - June 30, 20091
July 1 - June 30

Weights and Measures

1 metric tonne
1 kilogramme (kg)
1 metre (m)
1 millimetre (mm)
1 kilometre (km)
1 hectare (ha)
= 2204 pounds (lbs)
= 2200 lbs
= 3.28 feet (ft)
= 0.03937 inch
= 0.62 mile
= 2.471 acres

1
Rwanda became a member of the East African Community (EAC) on 1 July, 2007 after acceding to the EAC
Treaty on 18 June 18, 2007. Accordingly Rwanda's current budget calendar will change beginning 2009. The
2009 mini-budget that will run from 1 January to 30 June, 2009 will enable the country to transition to the EAC
budget calendar that runs from 1 July to 30 June.

ii
 Acronyms and Abbreviations
AfDB African Development Bank
BNR Central Bank of Rwanda
BSHG Budget Support Harmonization Group
CEDP Competitiveness and Enterprise Development Project
CPAF Common Performance Assessment Framework
CSP Country Strategy Paper
DBR Doing Business Report
DBSL Development Budget Support Loan
DFID Department for International Development (UK)
DRC Democratic Republic of the Congo
EAC East African Community
EDPRS Economic Development and Poverty Reduction Strategy
ESW Economic and Sector Work
EU European Union
FDLR Forces Democratic de Liberation du Rwanda
FSDP Financial Sector Development Program
FRA Fiduciary Risk Assessment
GBS General Budget Support
GDP Gross Domestic Product
GNI Gross National Income
GoR Government of Rwanda
HDI Human Development Index
IDA International Development Association (World Bank)
IFMIS Integrated Financial Management System
IMF International Monetary Fund
IPPIS Integrated Payroll and Personnel Information System
JBSR Joint Budget Support Review
MDG Millennium Development Goals
MINEDUC Ministry of Education
MINECOFIN Ministry of Finance and Economic Development
MINICOM Ministry of Commerce, Trade and Industry
MIFOTRA Ministry of Public Service and Labour
MOU Memorandum of Understanding
MTEF Medium Term Expenditure Framework
OAG Office of Auditor General
OBL Organic Budget Law
ODA Official Development Assistance
PCR Programme Completion Report
PEFA Public Expenditure and Financial Accountability
PFM Public Financial Management
PRGF Poverty Reduction and Growth Facility (IMF)
PRSG Poverty Reduction Support Grant (IDA)
PRSP Poverty Reduction Strategy Papers
PRSSP Poverty Reduction Strategy Support Programme
RADDEX Revenue Authorities Digital Data Exchange
RDB Rwanda Development Board
RIEPA Rwanda Investment and Export Promotion Agency
RPPA Rwanda Public Procurement Authority
RRA Rwanda Revenue Authority
RWFO Rwanda Field Office (of AfDB)
UA Unit of Account

iii
 Grant Information

Client’s Information

RECIPIENT: Government of Rwanda

EXECUTING AGENCY: Ministry of Finance and Economic Planning

Financing Plan

Source Amount Share Instrument

(Million UA) (%)

ADF 30.30 8% Grant

DFID 156.74 39% Grant
World Bank 105.63 27% Grant
EC 70.47 18% Grant
SIDA 17.72 4% Grant
Germany 10.50 3% Grant
Netherlands 6.27 2% Grant

TOTAL COST 397.63

Timeframe - Main Milestones (expected)

Concept Note Approval December, 2008

Project Approval May 2009
Effectiveness May 2009
Last Disbursement May 2010
Completion December 2010
Last Repayment N/A

iv

Programme Overview:
Program Title:
Geographical Scope:
Expected Outputs:
Overall Timeframe:
Programme Cost:
Executive Summary
Poverty Reduction Strategy Support Program (PRSSP) III
Rwandan National territory
• Enhanced business climate for private sector growth
• Broader access to credit
• Strengthened public financial management practices
2 years, January 2009 to December 2010
UA 397.63 million

Programme Description: Rwanda’s Economic Development and Poverty Reduction Strategy

(EDPRS) covering the period 2008-2012 sets the country’s developmental objectives, priorities
and policies for the next five years. The EDPRS is fully supported by country level stakeholders,
including development partners and assigns high priority to accelerating private sector-led
growth. PRSSP-III is aligned to the Bank’s Country Strategy Paper, 2008-2011. Further, it
contributes to the strategic outcomes of the following two flagship programs of the EDPRS: (i)
Growth for Jobs and Exports; (ii) Governance. The third flagship program of the EDPRS is,
Vision 2020 Umurenge, that aims to reduce inequality and poverty.

Programme Outcomes and Beneficiaries: PRSSP-III’s expected outcomes include: (i) improved
Rwanda’s ranking in “Doing Business” index; (ii) deeper access to credit by the private sector;
and (iii) enhanced financial governance as reflected in improved Public Expenditure and
Financial Accountability (PEFA) scores. The primary beneficiaries of the programme include
Rwandese entrepreneurs, especially small and medium-sized enterprises (SMEs), and the private
sector.

Needs Assessment: Budgetary grants, that are projected Government Financing (US$ Million)
at about 11 to 17 percent of Rwanda’s GDP during the S1 2009 2009/10
fiscal years 2009 to 2010/11, will continue supporting Financing Gap 409 698
the emerging dynamism of the agricultural sector, and Budgetary Grants 263 391
promoting spending in priority social sectors, thus (of which, AfDB = 33 12)
fostering progress towards the realization of the MDGs. Project Grants/Loans 141 303
The ADF Grant of UA 30.3 (US$ 44.46)2 million has Source: MINECOFIN & Bank staff estimates
been taken into account in the Government’s Budget Framework, 2009 – 2011/12, to close the
financing gap (see table, above).

Bank’s Added Value: The Bank has so far successfully provide Rwanda with two budget support
operations that were developed collaboratively with the Government, donors, and other country
level stakeholders. Further, the Bank was the lead donor for the Budget Support Group from
January to June 2008, and is currently playing an active role in the government-donor dialogue in
several policy areas, including public financial management. The Bank brought to bear this
cumulative level of experience during the design of PRSSP-III. Importantly, during the
implementation this operation, the Bank will fully mobilize its internal capabilities to actively
engage the Government and other donors during the Joint Budget Support Reviews and in the
preparations of joint analytic studies/reports.

Institutional Development and Knowledge Building: To enhance knowledge of Rwanda’s

developmental challenges and priorities the Bank’s Rwanda Country Office will through PRSSP-
III intensify the Bank’s policy dialogue at country level. Lessons learned will then inform Bank
2
Based on the March 2009 UA/US$ rate of 1.46736

v
Group’s advisory services to Rwanda as well as lead to better design of operations across the
wide range of Bank’s portfolio in the country. Finally, to foster shared learning, the Bank’s
Country Office will document the lessons learned, and disseminate the results Bank-wide through
a variety of channels, including seminars and newsletters.

Risks and Mitigation Measures:

Risks:
Risk #1: Political risk due to instability and conflict
in eastern DRC.
Risk #2: Macroeconomic risks due to inflationary
pressures late 2008 caused by rising world food and
fuel prices, and debt sustainability concerns due to
the country’s low exports base.
Risk #3: Risk related to the impact of the global
recession.
Risk Mitigation Measures:
Internally, Rwanda remains secure and politically
stable. Rwanda and DRC are working with the
international community to resolve the crisis.
Working with the IMF the Government has taken
steps to curtail the recent surge in inflation, and it
adopted in 2008 a comprehensive debt management
strategy.
A committee is in place that is advising the
Government on measures to be undertaken to manage
the impact of the global recession.

Recommendation: It is recommended that the Board of Directors approve the proposal of a Grant
not exceeding UA 30.3 million from the resources of the ADF-XI in the form of general budget
support based on the conditions stipulated in this report.

vi
 POVERTY REDUCTION STRATEGY SUPPORT PROGRAMME (PRSSP-III)
Results Based Logical Framework3

HIERARCHY OF EXPECTED REACH PERFORMANCE INDICATIVE TARGETS ASSUMPTIONS/RISKS

OBJECTIVES RESULTS INDICATORS TIMEFRAME
1. Goal: Impact: Beneficiaries: Impact Indicators: Progress Anticipated In The Assumption Statement:
Long Term: Assumptions
Contribute to economic Sustained Rwandese (1) GDP growth rate (1) 2009-2011/2012 GDP growth ƒ Political stability is maintained in the Great
growth and poverty rapid population average is sustained at 6% (in the Lakes sub-region
reduction. economic Source: MINECOFIN backdrop of the global recession), ƒ Macroeconomic stability is maintained
growth Reports compared to 7.2% in the 2003-2008 ƒ Global economic slowdown eases
Method: Supervision Mission period Mitigation
ƒ Political stakeholders in the region are engaged
Accelerated (2) Percentage (%) share of (2) From 2006 to 2012, the to continue to promote peace; Memorandum of
poverty population below poverty proportion of people whose income Understanding (MOU) for budget support bind
reduction is less than 1 dollar a day, pass parties to promote peace and security
Source: National Institute of from 56.9% to 46%. ƒ Rwanda is on track with IMF’s PRGF;
Statistics of Rwanda’s Alignment of donor budget support flows with
Household Living Conditions GoR budget has improved
Survey (EICV) ƒ Government is monitoring the impact of global
Method: Supervision Mission recession and is taking corrective measures
2. Programme Outcomes: Beneficiaries: Outcome Indicators: Progress Anticipated In The Assumption Statement:
Purpose: Medium Term: Risks
(A) Create an enabling Business Rwandese (1) Ranking in “Doing (1) Improve ranking in “Doing ƒ Inadequacy of implementation of reform measures
environment for private climate is entrepreneurs Business” Business Report” by 13 positions to ease constraints on the private sector
sector development by enhanced (especially to 145 by December 2010 from ƒ Deepening of the global recession leading to
enhancing the business SMEs) and Source: World Bank’s 158 in 2006. decline in external finance inflows to Rwanda
climate, and deepening population “Doing Business Report” Mitigation
access to credit Method: Supervision Mission • GoR has good track record of implementing
reforms, and is committed to the reform agenda
(2) Volume of credit to (2) Credit to the private sector ƒ Rwanda’s integration in the global financial
private sector increases to 12% of GDP by system is low
December 2010 from 10% in 2006
Source: BNR Monetary
Survey
Method: Supervision Mission

3
See Appendix II: Operation Policy Matrix for Poverty Reduction Strategy Support Programme (PRSSP) III for the complete range of policy measures supported under this programme.

vii
 HIERARCHY OF EXPECTED REACH PERFORMANCE INDICATIVE TARGETS ASSUMPTIONS/RISKS
OBJECTIVES RESULTS INDICATORS TIMEFRAME

2. Programme Purpose:
(B) Improve governance
of public finances by
strengthening public
financial management and
procurement practices
Outcomes: Beneficiaries: Outcome Indicators: Progress Anticipated In The Medium Assumption Statement:
Term: Risks
Public Rwandese (1) PEFA index (1) From 2007 to December 2010, the ƒ Low retention of skilled PFM staff within the
financial population, the following PEFA scores, pass from C+ to public sector
management private sector, B-: (i) Index for multiyear perspective in Mitigation
(PFM), and fiscal planning, expenditure policy, and ƒ This programme includes measures to support
including government budgeting; and (ii) Index on quality and capacity building in all PFM areas
procurement, agencies timeliness of annual financial statements ƒ During the implementation of this
is enhanced (2) Proportion of the value of (2) From 2006 to December 2010 the programme, the World Bank, DFID, and EU
procurement tendered proportion of the value of procurement are supporting capacity building in PFM
competitively or justified tendered competitively or justified pass through a Multi Donor Trust Fund.
from 73% to 80%
Source: Budget; Reports by
PEFA, RPPA, IPPS, IFMIS,
and OAG
Method: Supervision Mission

3. Inputs and Activities: Outputs: Beneficiaries: Output indicators: Progress anticipated in the short term: Assumption statement:
FINANCING (1) Strategies MINICOM; (1.1) Bills on Companies, (1.1) Bills on Companies, Contracts,
to improve RRA Contracts, Secured Secured Transactions, Business
business and Transactions, Business Registration and Insolvency adopted by Risk:
ADF UA 30.3 investment Registration and Insolvency Cabinet by March 2009 • Bank and other donor resources may not
Million climate are is approved be available for the implementation of
implemented (1.2) RADDEX system to (1.2) The RADDEX system to ease measures under the programme
(Million ease cross-border trade with cross-border trade with Tanzania and Mitigation:
US$) Tanzania and Uganda is Uganda is successfully implemented by • A MoU binds the behaviour of parties
DFID 230 implemented June 2010 during the implementation of this, joint
IDA 155 Source: World Bank’s programme
EC 103.4 “Doing Business Report”, • The programme incorporates prior
SIDA 26 MINICOM and RRA actions to drive technical conditions prior
Germany 15.4 Reports, and donor backed to Board approval
Netherlands 9.2 reform program reviews
under CPAF
Method: Supervision Mission

viii
HIERARCHY OF EXPECTED REACH PERFORMANCE INDICATIVE TARGETS ASSUMPTIONS/RISKS
OBJECTIVES RESULTS INDICATORS TIMEFRAME

(2) Financial Financial Sector (2.1) Regulatory framework for (2.1) Legal and regulatory framework for
Sector Development national payments systems, national payments systems, credit reference
Development Program credit bureau, and secured bureau, and secured transactions is adopted
Plan is (FSDP) transactions by Cabinet, by June 2009
implemented Secretariat (2.2) Establishment of private (2.2) Private credit reference bureau is
credit reference bureau established by December 2009
(2.3) Loan guarantee program (2.3) A loan guarantee program for
for commercial banks’ lending commercial banks to increase lending to
to SMEs. SMEs is established by June 2010
Source: BNR Monetary Survey,
and donor backed reform
program reviews under CPAF
Method: Supervision Mission
(3) Public Government (3.1) Adoption of PFM Reform (3.1) Adoption by Cabinet and publication
Financial agencies Action Plan of the PFM Reform Action Plan, 2008–
Management (Budget Unit, 2010 by March 2009
follow MIFOTRA, (3.2) Implementation of (3.2) PublicBooks software rolled out to all
international Public Account PublicBooks (accounting) budget agencies and integrated to IPPS by Risk:
best practices Unit, OAG, software under IFMIS December 2010 • Reform measures as articulated in the
Treasury, and (3.3) Proportion of (3.3) From 2006 to December 2010 the PFM Reform Action Plan are not
RPPA) Government expenditures percentage of expenditure audited by OAG implemented
independently audited pass from 50% to 60% Mitigation:
(3.4) Publication of (3.4) Publication, by March 2009, of the • Donors are setting up a basket fund for
independent review (appeal) 2008 annual report of the independent supporting the implementation of
panel report panel addressing appeals by contractors of activities under the PFM Action Plan
public procurement decisions
(3.5) Implementation of the (3.5) Approval by Cabinet of the Public
Public Investment Policy Investment Policy by April 2010
Source: Budget; Reports by
PEFA, RPPA, IPPS, IFMIS,
MINECOFIN, and OAG, donor
backed reform program
reviews under CPAF
Method: Supervision Mission

ix
REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE ADB GROUP
TO THE BOARD OF DIRECTORS ON A PROPOSED GRANT TO RWANDA FOR
THE POVERTY REDUCTION STRATEGY SUPPORT PROGRAMME III

I. THE PROPOSAL
1.1 I submit the following Report and Recommendation on a proposed grant to Rwanda
for UA 30.3 million to finance the Poverty Reduction Strategy Support Program (PRSSP) III. It is
a general budget support operation, and will be implemented over two years from January 2009
to December 2010. The programme was appraised in January 2009. It results from a request of
the Government during the 2008 Joint Budget Support Review (JBSR). PRSSP-III is aligned with
Rwanda’s Economic Development and Poverty Reduction Strategy (EDPRS), 2008-2012, and the
Bank’s Country Strategy Paper (CSP), 2008-2011 that was adopted in November 2008. Donors
endorsed the EDPRS in September 2008. The design of this programme took into account good
practice principles on conditionality and the Bank Group’s non-concessional debt accumulation
policy.

1.2 The programme purpose is to contribute to the strategic outcomes of two EDPRS flagship
programmes: Growth for Jobs and Exports, and Governance, as articulated in the CSP. Its
operational policy objectives are to: (i) create an enabling environment for private sector
development by enhancing business environment and deepening access to credit; and (ii) improve
governance by strengthening public financial management and procurement practices. Its
expected outcomes include: improved Rwanda’s ranking in “Doing Business” index; broad
access to credit by the private sector; enhanced Public Expenditure and Financial Accountability
(PEFA) scores; and improved transparency of public procurement.

II. COUNTRY AND PROGRAMME CONTEXT

2.1 Government’s Overall Development Strategy And Medium-Term

Reform Priorities
2.1.1 Rwanda’s Vision 2020 document, that was completed in 2000 after consultations with
several stakeholders, envisages the country as a middle-income economy with a healthier and
better educated population, with life expectancy increasing to 55 years, full literacy, and a
per capita income of US$ 900 by 2020. Consistent with this Vision, Rwanda’s current medium-
term Economic Development and Poverty Reduction Strategy (EDPRS), covering the period
2008 to 2012, emphasizes on a dynamic and innovative private sector, rapid knowledge and skill
acquisition, good governance, and a responsive and effective public sector as key instruments for
economic transformation. Since 2004, donors, through the Development Partners Coordination
Group (DPCG), the Budget Support Harmonization Group (BSHG), and Sector and Cross Sector
Clusters have been involved in preparatory consultations and joint review of the implementation
of the EDPRS through the biannual joint budget support reviews. Such coordinated actions are
fostering complementarities among donors in their support for the implementation of the EDPRS.

2.1.2 Taken together, the EDPRS’ three flagships programmes - Sustainable Growth for
Jobs and Exports; Vision 2020 Umurenge (a decentralized social protection scheme); and
Governance - propose a comprehensive agenda of economic growth favouring the poor that
is underpinned by good governance, and that provide a roadmap for Rwanda to achieve the
Millennium Development Goals (MDGs) by 2015. The Sustainable Growth for Jobs and
Exports flagship aims to boost growth by enhancing competitiveness, private sector investment
and innovation, agricultural productivity, exports, and information and communication
technology (ICT) competences. These require measures to lower the costs of doing business,

1
including enhancement of technical skills and promotion of education in science and technology
to alleviate the shortage of skilled labour and to enhance private sector innovation and
productivity. Other priorities include improving economic infrastructure, promotion of the
adoption of modern technologies and deepening the financial sector. The second flagship, Vision
2020 Umurenge, aims to address extreme poverty and vulnerability, particularly in the rural
areas. It has three components: (i) public works to create off-farm employment and the building
of community assets; (ii) development of cooperative, and small and medium-sized enterprises
(SMEs) to foster entrepreneurship; and (iii) provision of social services and assistance to landless
families that are unable to participate in public works programs. Finally, the Governance flagship
focuses on: maintenance of peace and security; improved relations with all countries; promotion
of national unity and reconciliation; justice, human rights and the rule of law; and
decentralization, public financial management and service delivery. It complements ongoing
programs aimed at creating well-defined property rights, business friendly regulations, efficient
public administration, and the elimination of corruption.

2.1.3 Rwanda’s medium-term outlook on inflation, economic growth, and fiscal financing,
are favourable. Broadly, the International Monetary Fund (IMF)’s fifth review of Rwanda’s
Poverty Reduction and Growth Facility (PRGF), in November 2008, assessed the medium-term
macro-economic framework to be sound and adequate to support the Government’s reforms
under the EDPRS (see Appendix VIII: IMF’s Country Relations Note).

2.2 Recent Economic And Social Development, Perspectives, Constraints

And Challenges
2.2.1 Economic Developments: Rwanda’s Graph 1. Recent Economic Outcomes
US$ 3.1 billion economy (World Bank,
2007) did not achieve a 6-7 percent growth 10 1,400
rate, during the period 2002-2006, as
Real GDP Growth Rates (%)

9
1,200

GDP per Capita (US$)

8
projected in the its first PRSP (2002-2005). 7 1,000

Nevertheless, economic growth began to 6

5
800

accelerate to 7 percent annually during fiscal 4

600

3 400
years 2006 and 2007, and was estimated to 2

surpass 8 percent in 20084, but because of the

200
1
0 0

negative impact of the global recession it will 1999 2000 2001 2002 2003 2004 2005 2006 2007

weaken to 6 percent in 2009 (see Graph 1 and

R wa nda : R e a l GDP Gro wth R a te s (%) (le ft s c a le )
Table 1). A key driver to the surge in Afric a : R e a l GDP Gro wth R a te s (%) (le ft s c a le )
R wa nda : GDP pe r C a pita (US $ ) (right s c a le )
economic activity has been the large infusion Afric a : GDP pe r C a pita (US $ ) (right s c a le )

of Official Development Assistance (ODA) to Source: ADB Statistics Department, 2008.

Rwanda and the buoyant activity in the agriculture, construction, and services sectors. Agriculture
and services sectors contributed 36 percent and 50 percent, respectively, in nominal GDP in 2007,
with the later growing steadily at an average of 9 percent annually during the period 2003-2007.
The construction sector (6 percent of GDP) has been growing at 10 percent annually during the
last decade, and with the scaling up of public investments it will remain a major contributor to
growth and employment. Transport, communications, and tourism are other key drivers of
economic growth. With the expanded East African Community (EAC), there is vast potential for
growth in the agro-processing oriented manufacturing sector that is currently small, comprising
14 percent of nominal GDP (2007). However, sustained growth in this sector would require the
Government to take measures to stimulate higher private sector investments and to improve
productivity and competitiveness.

4
During the period 1995-2002, Rwanda’s economy grew annually by 10 percent due to reconstruction activity
and structural reforms required after the 1994 genocide. Economic growth slackened to 5 percent annually
during the period 2002-2006, mainly because the agricultural sector performed poorly.

2
2.2.2 The Rwanda’s economy experienced a surge in inflation from an annual average 9.1
percent in 2007 to an estimated 15.1 percent by end of 2008, due to rising world food and
energy prices, and domestic demand pressures fuelled by fiscal expansion and large inflows
of foreign exchange (see Table 1). The IMF’s fifth review of the PRGF concluded that with a
combination of the GoR’s tight monetary policy measures and the decline of international
commodity prices, inflation would decline to single digit level in the second half of 2009.
Further, coordination of fiscal and monetary policies and improved liquidity forecasting and
management would help to ease inflationary pressures.

Table 1: Selected Economic Indicators

2008 (Est.) S1 20095 (Proj.) 2009/10 (Proj.) 2010/11 (Proj.)
Real GDP Growth (%) 8.5% 6.0% 6.0% 7.8%
Inflation (% CPI, Annualized) 15.1% 7.7% 7.0% 5.3%
Domestic Revenue as % of GDP 13.9% 15.4% 13.0% 13.3%
External Grants as % of GDP 13.1% 17.3% 11.7% 11.0%
Expenditure as % of GDP 27.4% 32.6% 25.6% 30.1%
Overall Fiscal Balance (incl. grants) -0.4% 0.1% -1.6% -0.7%
Source: MINECOFIN, IMF and Bank Staff Projections (see Appendix V)

2.2.3 Rwanda’s fiscal stance has remained expansionary with public expenditures rising
substantially in recent years, from 20 percent of GDP in 2000 to 26 percent in 2007, due to
the need to rapidly reconstruct the country and improve public services. Investments grew
rapidly, financed by increasing domestic resource mobilization and growth in external assistance.
The key expenditure policy of the EDPRS is to shift resources towards public investments and
priority expenditures including human resource development and infrastructure, and consequently
squeeze out expenditures related to public administration and defence. Capital expenditure is
projected to increase from 11 percent of GDP in 2008 to 12 percent of GDP in 2009/2010, while
recurrent expenditures are planned to decline from 16 percent of GDP to 14 percent of GDP over
the same period. The overall fiscal deficit, after grants, is projected at about 2 percent of
GDP by 2009/2010 (see Table 1).

2.2.4 The recent medium-term expenditure framework envisages that expenditures as a

proportion of GDP would peak in 2008/2009 while the tax base will continue to widen and
increase domestic resource mobilization, by 0.2 percent of GDP per annum, thus gradually
reducing aid dependency. Since the establishment of the Rwandan Revenue Authority in 1997,
substantial progress has been made in increasing government revenues, from 11.4 percent of GDP
in 2001 to 13.6 percent in 2007, and
was estimated at 13.9 percent in 2008. Table 2 Balance of Payments 2007 2008 2009
(Proj.) (Proj.)
Dependence on international trade
External sector (annual percentage changes)
taxes has been significantly reduced Export of goods, f.o.b. (US$) 20.1 25.4 6.2
and VAT, personal, and corporate Imports of goods, f.o.b. (US$) 30.2 43.9 5.9
taxes have become important Terms of trade (deterioration = -) 13.7 -4.4 -3.7
domestic revenue sources. Current a/c balance (incl. official
transfers -4.9 -7.1 -8.2
2.2.5 In the external sector despite Sources: IMF
Rwanda’s revenues almost tripling between 2003 and 2007 (2007: US$ 170 Million; 2003:
US$ 63 Million) its current account deficit (including official transfers) deteriorated
significantly between 2007 and 2008 (see Table 2). The main cause of the deterioration of the
current account balance is the worsening of the trade and services accounts due to Rwanda’s high
demand for imports of capital goods.

5
Semester One 2009: January to June

3
2.2.6 A rapid deterioration of Rwanda’s debt dynamics over the medium-term could
emerge from exogenous shocks to exports or imprudent borrowing on non-concessional
terms, a World Bank’s Debt Sustainability Analysis (DSA) of end-June 2008, observed. This
could threaten Rwanda’s external debt position that had declined, as a proportion of GDP, from
70.7 percent in 2005 to 16.7 percent in 2006, thanks to the enhanced Heavily Indebted Poor
Countries (HIPC) and the Multilateral Debt Relief, initiatives. In response, the Government has
developed a comprehensive debt management strategy that will drive future public sector
borrowing needs.

2.2.7 The IMF is concerned that the risks of contagion from the deteriorating external
environment were on the rise for Rwanda, although the medium-term macro-economic outlook
remains favourable. Currently, the overall impact of the global financial crisis on Rwanda has
been manageable because of the limited integration of the economy to the international financial
markets. However, the deepening of the ongoing global recession is likely to slow down
Rwanda’s high GDP growth performance through the negative impact on ODA, Foreign Direct
Investment (FDI), remittances, and the performance of the banking sector (see Box 1).

Box 1: Impact of the Global Economic Crisis on Rwanda’s Economic Prospects

Because of the continued global recession, Rwanda’s economic growth rate projection for 2009/2010 has been revised
downwards to 6 percent from an initial projection of 7.4 percent6. Investment activity and growth of the tourism and
construction sectors are expected to slow down leading to lower GDP growth.

Weaker external balances will emerge if flows of ODA, FDI, and remittances slacken. Rwanda’s inward remittances
amounting to $21 million in 2005, accounted for 0.8 percent of GDP in 20067. Reductions in remittances could exacerbate
the current liquidity constraints on the commercial banks and slow down expansion of private sector credit and investment.
Although to date donors have confirmed their commitments to Rwanda and therefore no major cuts in ODA is expected,
continued global recession beyond 2010 may lead to decline in ODA funding that could impend the implementation of the
planned programs of investment. The Bank is supportive, and has frontloaded by 24% or UA 7.15 million, PRSSP-III’s first
disbursement tranche.

A slackening of economic growth could lead to vulnerability of banks because of rising credit risks. This may
undermine the present strength of the banking sector where presently, all 8 commercial banks are well capitalized, and
comply with the minimum capital requirement of FRW 5 billion.

To manage the impact of the global financial crisis on Rwanda, the Government has constituted a committee
comprising representatives MINECOFIN, NBR, commercial banks, insurance and microfinance institutions. It is too
early to make an assessment whether the measures the GoR has taken are adequate to mitigate the negative impact of the
global economic recession. Nevertheless, measure taken in the 2009 mini-budget and that aim to limit contingent spending,
and to save for future use the revenues that exceed estimates will have positive effects on the 2009 fiscal deficit. Finally, on
the monetary policy front, NBR has committed itself to maintaining flexibility of the exchange rate as a key instrument of
managing inflationary pressures.

2.2.8 Looking ahead, the IMF recommend that the Government would need to implement
structural reforms that will foster increased investment, expand private sector participation,
broaden financial sector, and a diversify productive and export base. Further, the Government
would need to take measures to increase real interest rates to positive levels. Finally, decisive
actions would need to be taken to implement the Public Investment Programme and the Financial
Sector Development Plan if Rwanda is to realize gains of an expanded productivity base and lay a
solid foundation for sustainable growth, in the longer-term.

2.2.9 Governance: Although Rwanda is internally secure and politically stable, with an all
inclusive Government as required by the 2003 Constitution, its external sub-regional
political dynamics are not so favourable. The Legislative Elections in September 2008 received

6
The latest growth rate projections have assumed that the global economy will begin to recover in 2009
enabling the Rwandan economy to resume its rapid growth in 2010. However, these projections are continually
being reviewed as the global economy evolves.
7
See International Organization for Migration at: http://www.iom.int/jahia/Jahia/pid/381

4
positive assessments from International Election Observers. Further, the political tensions and
conflicts within the Great Lakes Region have receded in recent years although such conflicts had
resurfaced in eastern Democratic Republic of Congo (DRC). The Government’s Decentralization
Policy is the basis for sustainable governance reform in the countryside. A considerable amount
of flexibility has been built into the system, including service charters/citizen contracts in some
provinces to form the basis for monitoring and accountability.

2.2.10 The Government has a policy of zero tolerance for corruption and allegations
regarding public officials are routinely investigated and brought to the courts. Rwanda ranks
better than its EAC neighbours in 2008 Transparency International’s Corruption Perception Index
as well as on the 2008 Ibrahim Index of African Governance. Finally, a 2008 Joint Governance
Assessment (JGA) by donors and the Government, and a recent Bank’s own Governance Profile
concluded that progress has been made by Rwanda to strengthen governance but much more
needs to be done in the area of institutional strengthening.

2.2.11 A major area of governance reforms in Rwanda is Public Financial Management

(PFM) where reforms have focused on capacity building for accounting, auditing and
procurement functions, and management of public investment at various levels of
government. A Public Expenditure and Financial Accountability (PEFA) assessment, completed
in October 2007, and a Fiduciary Risk Assessment (FRA) conducted by DFID and the Bank in
2008, found Rwanda’s PFM systems to be sound, although challenges remain. To overcome
institutional capacity constraints, the Government recently developed a PFM Action Plan
covering a wide range of reforms including strengthening budget management, accounting, fiscal
reporting, auditing, and procurement systems.

2.2.12 Social and Human Development: Graph 2. Human Development Index

While Rwanda’s social indicators
remain weak, substantial progress has
been made since the late 1990s in
many areas including gender equality, 0.46 Rwanda
0.45
adult literacy, enrolments in primary 0.44
and secondary education, primary 0.43
0.42
health services, and the prevention of 0.41
Central Africa
the spread of HIV/AIDS (see Graph 2). 0.40

The share of women in positions of 0.39

0.38
influence (including the Cabinet and 0.37
Parliament) is now about 40 percent, and 0.36
1998 1999 2000 2001 2002 2003 2004 2005
net enrolment in primary education has
Rwanda Central Africa
risen to about 90 percent, with parity
between boys and girls. Immunization Source: ADB Statistics Department, 2008
rates for children are among the highest in the sub-region. The incidence of HIV/AIDS has
recently been estimated to be about 3 percent in adults, much lower than the previous estimates8.

2.2.13 Appendix IV shows that Rwanda is on track to meet many of the targets, under the
Millennium Development Goals (MDG) 2: achieve universal primary education; MDG 3:
promote gender equality; MDG 4: reduce child mortality; and parts of MDG 6: combat AIDS,
malaria and other diseases, and will very likely meet targets under MDG 7: ensure environmental
sustainability. However, the challenge of meeting the MDGs on inequality and the
eradication of extreme poverty and hunger, is huge. Overall poverty incidence and extreme
poverty between 2000/2001 and 2005/2006 declined moderately from 60.4 percent to 56.9
percent and 41.3 percent to 36.9 percent, respectively, and the Gini coefficient rose from 0.47 to
8
A year 2000 estimate of 11 percent HIV prevalence rate among adults was not rigorous. It was an
extrapolation from seropositivity among hospital patients.

5
0.51. The recent acceleration of economic growth, particularly in the agricultural sector, and the
adoption of social protection programs under the EDPRS, are expected, with donor support, to
contribute to progress in this area.

2.3 Bank Group Portfolio Status

2.3.1 As at end-December 2008, the Bank Group total commitments (net of cancellations)
in Rwanda amounted to UA 180.9 million for 13 operations, with no persistent generic
problems across the portfolio of projects and programmes (see Appendix VI). A
comprehensive assessment of the Bank’s portfolio in Rwanda as part of the CSP preparation
process revealed a significant improvement in the quality of the portfolio as reflected in a sharp
increase in the disbursement ratio, which stood at 50.8% in June 2008 compared to 12.1% in
November 2005. The Bank has undertaken two general budget support operations in Rwanda.
The Programme Completion Report (PCR)’s for these operations - PRSSP I, and PRSSP II - each
concluded that the respective objectives were substantially met.

III. RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILITY

3.1 Link With The CSP, Analytical Underpinnings And Country Readiness
Assessment
3.1.1 Link with the CSP: The proposed budget support operation is in line with both the
EDPRS and the Bank’s strategic goals including those in the CSP. The Bank’s CSP for
Rwanda (2008-2011) focuses its support on the Growth for Jobs and Exports flagship of the
EDPRS and has two pillars: (i) economic infrastructure, covering transport, energy, ICT, water
and sanitation; and (ii) competitiveness and enterprise development, including the development
of the skills for science, technology, and innovation. The CSP emphasizes on the need to raise
private sector productivity and competitiveness. Further, it proposes a combination of
instruments, including direct budget support and project investment lending, to support three
strategic objectives of the EDPRS, namely: (i) creating an enabling environment for private
sector growth; (ii) reducing the cost of doing business; and (iii) broadening access to financial
services.

3.1.2 The EDPRS, supported by earlier studies and surveys, made the case that
infrastructure services, the regulatory environment, and inadequate financial services were
serious constraints to the Growth for Jobs and Exports. Easing these constraints requires (i)
regulatory and financial sector reforms to enhance private sector development; and (ii) effective
management of public investments in infrastructure, knowledge and skills development as well as
overall public expenditures. The Bank’s CSP and this programme, have been designed with these
objectives in mind. Further, these Bank instruments were developed to respond to the
Government’s preference for untied budget support, as evidenced in its Aid Policy Paper, to
ensure that public expenditures are aligned to the priorities of the EDPRS.

3.1.3 Country readiness for budget support: Rwanda has a stable and democratic
government based on constitutional power sharing by different political formations. The
Government has prioritized maintenance of macroeconomic stability and the successfully
concluded IMF’s PRGF review in November 2008 noted that the actions it is taking to control the
recent surge in inflationary pressures are appropriate. The EDPRS, that is strongly owned by
Rwandans, underpins the strategic framework for the medium-term expenditure framework
(MTEF) and other policy actions. Rwanda’s Aid Policy provides a framework for a strong
partnership between the Government and the donors. An effective donor coordination
arrangement, under the auspices of the Budget Support Harmonisation Group (BSHG) is in place.

6
The October 2007 PEFA, and the 2008 Fiduciary Risks Assessments by DFID and the Bank
(2008) found that Rwanda’s PFM systems have good fiduciary safeguards, and are
improving.

3.1.4 Analytical works and underpinnings: A number of analytical works and

consultations underpin the proposed budget support operation (see Appendix VI). The
EDPRS consultations, the Government’s Aid Policy Paper, and the dialogue with the
Government and the other development partners during the Bank’s CSP preparation, have all
identified the priorities and modalities for support. The World Bank’s 2007 Country Economic
Memorandum and the recent Doing Business surveys have identified the constraints to private
sector development and areas requiring urgent attention. The Government undertook wide
consultations to prepare a Financial Sector Development Program that is currently under
implementation. On the financial governance front, recent analytical works include the 2007
Public Expenditure and Financial Accountability (PEFA) review, the 2008 Fiduciary Risk
Assessment, and the wide consultations during the development of the PFM Reform Action Plan.
In addition, the IMF has been undertaking regular reviews of economic and financial
performance in the context of the PRGF program. Finally, a public expenditure review (PER)
exercise that is being conducted by the Bank, World Bank and the Government will play a major
role of strengthening the management of public finances during the implementation of PRSSP-III.

3.2 Collaboration And Coordination With Other Donors

3.2.1 Through the Bank’s Rwanda Country Office, the Bank is actively engaged in
strong and coordinated dialogue between the Government and donors during the regular
meetings of the BSHG. The BSHG, which currently comprises of seven donors is chaired by the
Minister for Finance, with a donor co-chair, and provides a forum for Government-donor
dialogue on budget support matters. The Bank was the co-chair of this group during the first
half of 2008. The BSHG holds two formal review meetings each year (April and September)
where budget reforms and performance issues are discussed. The Government, in collaboration
with the budget support partners, has developed a Common Performance Assessment Framework
(CPAF) to facilitate monitoring the EDPRS outcomes over the period 2008-2012 (see Appendix
II).

3.2.2 Besides coordination in the delivery of budget support, the Bank engages other
development partners in related areas. As member of the PFM Working Group, the Bank
works with the EU, Germany, DFID, the World Bank and the IMF to support the
Government in the design and implementation of PFM reforms and to review progress.
Further, the Bank collaborates with other partners on analytical work on PFM. The Bank has also
collaborated with the World Bank in the design of the Competitiveness and Enterprise
Development Project (CEDP) II, and through CEDP-II is working with USAID to strengthen the
financial sector through the establishment of a credit reference bureau. Other fora for dialogue
that the Bank actively participates in include the annual Development Partners meeting, the bi-
monthly meeting of the Development Partners Coordinating Group (DPCG) and several sector
working groups, including one for the water and sanitation sector where the Bank is currently the
co-chair. Details of this collaborative work are provided in the Technical Annexes.

3.3 Outcomes And Lessons From Past Similar Operations

3.3.1 The Bank’s PRSSP-I supported the Government to lay foundation for enhanced private
sector growth, including the development of socio-economic infrastructure, liberalization of
trade, and reforms and capacity development in PFM. Under PRSSP-II, reforms targeted
improvement in the business climate, development of the exports sector, privatization of state
enterprises, and deepening reforms over PFM systems. Thanks to the Bank’s and other donors’

7
interventions, Rwanda has transitioned from post-conflict reconstruction to development,
and is making good progress towards meeting the MDGs. Its governance indicators, including
those relating to the Country Policy and Institutional Assessment (CPIA) rating, have improved
significantly. However, lessons learned from the previous two budget support operations
show that much more remains to be achieved before Rwanda can claim to be fully attractive
to investors, and to have a fully coherent, modern and effective PFM system. Further,
progress was noted to be slow in the implementation of the privatization programme9. The
Government is taking decisive action. It has committed itself to accelerating the pace of PFM
reforms as it addresses capacity constraints. Further, it is committed to its privatization program
once the global financial environment improves, and is pursuing the listing of Government shares
in private companies on the newly created Rwanda Stock Exchange. On the Bank’s side, the
design of PRSSP-III applies the good practices principles on conditionality (see section 3.6), and
draw lessons from the findings and recommendations of the PCRs for the previous operations
(see Box 2).

Box 2: Summary of Lessons Learnt

PRSSP I to II Lessons Actions Taken
Reduce the number of conditions precedent The design of the PRSSP-III covers a selected number of measures
to disbursements, in line with country that were carefully selected from the CPAF (see Appendix II), that
implementation capacity was developed by the Government, collaboratively with donors
The Bank should monitor and supervise Internal capacity at Rwanda Country Office has been enhanced with
budget support operations, more closely a macroeconomist, who is responsible for donor coordination, and
who will monitor and supervise PRSSP-III.
To sustain prior reform efforts the Bank Public financial management remain a key area of focus for reforms
should continue supporting reforms over by the Government, and PRSSP-III will support this effort (see
PFM (including procurement) systems section IV of this report)
The Bank should engage the Government The Government has now reinforced monitoring of the EDPRS
through dialogue to ensure enhanced outcomes through the Common Performance Assessment
implementation capacity for reforms, and Framework (see paragraph 3.5.1). A bi-annual Joint Budget Support
to strengthen coordination of donor budget Review (JBSR) process is now in place, that the Bank will use as a
support. Such mechanisms were found to fora to engage the GoR and other donors throughout the
be weak under PRSSP-I & II implementation of PRSSP-III (see section 5.2)

3.4 Relationship To Other Bank Operations

3.4.1 PRSSP-III provide strong complementarity and linkages across other Bank
interventions in Rwanda (see Appendix VII: Bank portfolio in Rwanda). CEDP-II that support
the full establishment of the Rwanda Development Board (RDB), the agency responsible
promoting exports, investments, and a favourable environment for business, has strong linkages
to PRSSP-III’s strategic outcome of enhancing the business climate. One of PRSSP-III’s
conditions requires the timely establishment of a credit reference bureau that is the focus of the
Bank’s CEDP-II’s capacity building interventions. The Bank’s US$ 30.3 million Grant to GoR in
support of the Education Sector Strategic Plan (ESSP), 2006-2010, that aims to enhance human
resource capacity for improved business development is complementary to this operation. Other
interventions by the Bank in the infrastructure sector (transport, and energy) that aim to reduce
the cost of doing business are also complementary to PRSSP-III’s outcomes. Finally, PRSSP-III’s
outcomes will have strong linkages with the Fund for African Private Sector Assistance (FAPA)’s
grant of US$ 1 million that is enhancing the capacity for business operators in Rwanda.

9
The finalization of the privatization of Banque de Kigali and Rwandaair as envisaged under PRSSP-II was not
achieved by the programme’s closure date of December 2008. The process to privatize Rwandaair with advice
from the International Finance Corporation (IFC) was concluded unsuccessfully. Further, the ongoing global
financial crisis has forced Rwanda to suspend the privatization of the Banque de Kigali.

8
3.5 Bank’s Comparative Advantage
3.5.1 The cumulative experience and positive achievements in the course of
implementation of the past budget support operations (PRSSP-I and PRSSP-II) within its
large portfolio of projects in Rwanda, have provided the Bank with invaluable experience in
supporting reforms in the areas of private sector, financial sector development, and
financial governance. Indeed, the latter is a key pillar of the Bank’s Governance Strategic
Directions and Action Plan 2008-2012. Importantly, the implementation of the PRSSP-I and
PRSSP-II have enabled the Bank to establish and maintain good dialogue with the Government
and other development partners within the BSHG, that the Bank co-chaired early 2008. During
that time, the Bank worked closely with the Government and the other development partners to
develop a coordinated mechanism for delivery of budget support assistance in Rwanda that is
underpinned by the Common Performance Assessment Framework (CPAF). With PRSSP-III the
Bank will continue engaging in policy dialogue, which is expected of it by the Government and
the other development partners.

3.6 Application of Good Practices Principles On Conditionality

3.6.1 Reinforce ownership: The Government has established a strong record of engaging a
wide range of country-level stakeholders, including civil society and private sector actors and
development partners, during the development and the implementation of its poverty reduction
strategies at both macro and sector levels. The proposed PRSSP-III is in line with the Bank’s
Rwanda CSP (2008-2011) that was developed in close consultation with the Government and
other development partners, and that is aligned to the EDPRS.

3.6.2 Coordinated accountability framework: The PRSSP-III is based on a formal

Partnership Framework with other development partners through a Memorandum of
Understanding (MOU). It reflects the coordinated approach by development partners to
disbursement triggers (conditions), amounts of support, and timing of the delivery of assistance in
line with the funding needs of the budget and the budget cycle. The Policy Matrix of the PRSSP-
III (see Appendix II), is based on the CPAF that was developed collaboratively by the GoR and
development partners, and is drawn from the Policy Matrix of the EDPRS.

3.6.3 Select only actions that are critical for achieving results as conditions for
disbursement: The triggers for programme disbursement are few and comprise of actions that are
achievable and essential to drive outcomes from the Government’s program. Four prior actions
have been selected for the disbursement of the first tranche in 2009, and four conditions to satisfy
the disbursement of the second tranche in 2010.

3.6.4 Conduct transparent progress reviews conducive to performance based financial

support: Reviews of the program will take place in line with the agreed principles of the
Partnership Framework between the GoR and the donors supporting the budget. Joint reviews
take place twice a year, in April and September and are aligned with the budget cycle. The Bank
will participate in those reviews as key requirement for the supervision of the programme.

IV. THE PROPOSED PROGRAM AND EXPECTED RESULTS

4.1 Programme’s Goal And Purpose

4.1.1 The overall goal of the proposed Poverty Reduction Strategy Support Programme
(PRSSP) III is to contribute to economic growth and poverty reduction in Rwanda in line

9
with the strategic objectives of two flagship pillars of the EDPRS: Sustainable Growth for
Jobs and Exports; and Governance. In the medium-term the programme will support Rwanda’s
ability to cushion itself from the adverse impacts of the global slow down and to sustain its
economic growth rate at an average of 6 percent in the period 2009-2012. Further, because of its
focus on outcomes that would benefit the poor, it is expected that the programme will support
Rwanda’s EDPRS goal of reducing poverty to 46 percent by 2012, from 56.9 percent in 2006.

4.1.2 The purpose of this programme is twofold: (i) to create an enabling environment for
private sector development by enhancing the business climate, and by deepening access to
credit; and (ii) to improve governance in public finances by strengthening public financial
management (PFM) and procurement practices, as outlined in Box 3.

Box 3: Purpose of PRSSP-III

To create an enabling environment for private sector growth by:
• improving Rwanda’s ranking in the World Bank’s “Doing Business Report” by 13 positions to 145 by
December 2010 from 158 in 2006
• expanding access to credit by the private sector to 12% of GDP by December 2010 from 10% in 200610

To enhance transparency of PFM system by supporting reforms to:

• improve Rwanda’s PEFA index to B- by December 2010 from C+ in 2007 in key areas of budgeting
and financial reporting
• increase the percentage of value of procurement tendered competitively or justified to 80% by
December 2010 from 73% in 2006

4.2 Programme’s Pillars, Operational Objectives, And Expected Results

4.2.1 Consistent with the CSP and lessons learned from previous operations, the proposed
programme has two pillars: (i) create an enabling environment for private sector
development; and (ii) improve governance in public finances. Effective reforms in these two
areas provide the critical foundation for productivity growth, competitiveness, and good
governance that are critical for achieving Rwanda’s development objectives. The full measures
supported by this operation are shown in the Operation Policy Matrix for PRSSP-III that is
attached as Appendix II.

• Create an enabling environment for private sector development

4.2.2 To achieve its EDPRS strategic objectives of increasing economic growth and
enhancing population development, Rwanda, since 1997, has embarked on a series of
reforms that were aimed at enhancing the business and investment climate to achieve gains in the
World Bank’s “Doing Business Report” (DBR) rankings. However, evidence show that
progress is mixed.

4.2.3 Ranking In “Doing Business Report: The 2008 and 2009 DBRs identify Rwanda as
among the top reformers. The DBR 2008 (181 countries were surveyed), ranked Rwanda high
(44 out of 181) on enforcing contracts and on procedures for paying taxes (50 out of 181). In the
DBR, 2009 (181 countries surveyed), Rwanda is mentioned as a top 10 reformer in dealing with
construction permits and in registering property. This is significant progress given the
overwhelming task of reconstruction the country faced after years of conflict. Nevertheless,
because of shortcomings in the areas of access to credit, protection of investors, trading
across boarders, and closing businesses, Rwanda continue to be lowly ranked in the World

10
The forecast on expansion of credit to private during the 2009/2010 fiscal period has marginally been revised
down to 12% from 12.2% as per the estimate in the CPAF (see Appendix II) to mitigate any negative impact
that may arise because of the ongoing global recession. Rwanda’s limited integration into the global financial
system makes the revised estimate manageable to achieve.

10
Bank’s Doing Business surveys (2007: 150 out of 178 countries surveyed; 2008: 148 out of 181;
and 2009: 139 out of 181). On the closing business, Rwanda has ranked last on the DBR, 2009
because of the absence of a suitable legal framework on insolvency (see Table 3). Credit
information is least available because of lack of a credit reference bureau (see 4.2.7, below).
Investors have low protection because shareholder suits are very difficult in Rwanda. Trading
across boarders as measured through ease of importation is problematic, and very costly.

4.2.4 The Government has taken action, Table 3: 2009 Ease of Doing Business (Africa)
and currently, bills to revise the company Highest
law and simplify company registration, Rwanda Ranked
protect investors, and provide a legal Selected Indicators Ranking (Mauritius)
Ease of Doing Business 139 24
framework to close a business are expected 60 7
to become law by June 2009. This would put Starting a business
Dealing with permits 90 36
in place an insolvency legal framework, which
Employing workers 93 64
does not exist and where Rwanda has ranked
last in DBRs. Adoption of these bills by Registering property 60 127
Rwandese Cabinet is a prior action, by March Getting credit 145 84
2009, under PRSSP-III (paragraph 4.2.20). As Protecting investors 170 11
outlined in the Letter of Development Policy Paying taxes 56 11
(Appendix I) these draft bills are currently Trading across borders 168 20
under validation or are being reviewed by the Enforcing contracts 48 76
legislature. Closing a business 181 70
Source: Doing Business Report, 2009 (World Bank)
4.2.5 Regarding cross border trade,
Rwanda does not control all the factors involved, but it is taking action to streamline trade
transactions. A Revenue Authorities Digital Data Exchange (RADDEX) system at the border
with Uganda and Tanzania will be implemented to facilitate custom clearance (see Letter of
Development Policy in Appendix I). It is expected that once implemented, this system coupled
with steps taken to extend the opening hours of custom offices at boarder-crossings and the
introduction of a risk-based inspections system, will significantly reduce delays and the costs to
importers and exporters. The launch of the RADDEX system is a condition precedent to
disbursement of the second tranche under PRSSP-III (see paragraph 6.2.4).

4.2.6 Other measures that the Government has taken to improve its service delivery to the
private sector include: (i) the consolidation in 2008 of seven government agencies that serve or
regulate the private sector into one entity, the Rwanda Development Board (RDB)11; (ii)
establishing the Commercial Registration Services Agency (CRSA), a one-stop shop for all the
business registration tasks that were formerly handled by five different agencies; (iii)
streamlining land registration transactions through a newly created Office of the Registrar of
Land Titles; and (iv) establishing the Rwanda Investment and Export Promotion Authority
(RIEPA) to promote investments and exports activities.

4.2.7 Deepening the Financial Sector: The Government is taking important steps to
strengthen financial regulations and infrastructure relating to national payments systems
and credit reference bureau. This is in response to the comprehensive Financial Sector
Development Program (FSDP) that was adopted by the Government in 2006 and that revealed
that several challenges need to be overcome for Rwanda to modernize its payment systems, and

11
The entities merged into RDB are Rwanda Investment and Export Promotion Agency (RIEPA), the Rwanda
Information and Communication Technology Agency (RITA), Centre d”Appui aux Petites et Moyennes
Enterprises (CAPMER), Rwanda Office of Tourism and National Parks (ORTPN), Rwanda Commercial
Registration of Services Agency (RCRSA), Human Resource and Institutional Capacity Development
Agency (HIDA), the Environmental Impact Assessment Division of the Rwanda Environmental Management
Agency (REMA) and the Privatization Secretariat.

11
deepen the financial sector. The adoption by the Cabinet, in September 2008, of a National
Payments Strategy for improving the payments infrastructure and developing basic payment
services was an important and initial step in the launch of a modern payment system for Rwanda.
A payments system bill to establish a framework for the BNR’s oversight over key components
of the Rwandan payment system was also submitted to Parliament in September 2008.
Furthermore, the Cabinet has approved the establishment of a National Payments Council, to
oversee the development and operation of modern payments systems. A new electronic payments
system will installed that will be managed by a private company, SIMTEL (Sociéte Monetique at
de Tele-Compensation au Rwanda), jointly with all the commercial banks. SIMTEL will provide
card payment services and automatic teller machines (ATMs) services, some of which are already
operational in Rwanda. The modernization of the payments system will include the development
of a Real Time Gross Settlement (RTGS) and Automatic Clearing House both of which will be
operationalized by 2010. Rwanda is collaborating with institutions in the EAC and the Common
Market for Eastern and Southern Africa (COMESA) to ensure compatibility of payments
systems. A key priority reform action that is presented in the GoR’s FSDP is the adoption
by Cabinet of a subsidiary regulation for the national payments systems, credit reference
bureau, and secured transactions. Further, a private credit reference bureau, affiliated to
bureaux that are operational in Uganda and Tanzania, has been granted a license (see Letter
of Development Policy, Appendix I), and is expected to be operational in Rwanda by the end
of 2009. The establishment of the private credit reference bureau is a condition precedent to
disbursement of the second tranche under PRSSP-III (paragraph 6.2.4).

4.2.8 Despite these actions, access to financial services in Rwanda is limited, with an
estimate of only 3 percent of the population having access to services offered by commercial
banks12. Factors constraining access to finance by the private sector were identified in the
FinScope Rwanda 2008 survey (funded by DFID) that highlighted serious weaknesses including
a narrow and shallow financial system and undiversified financial products. Recent reforms in
this area include licensing new private banks, and divestiture and restructuring of state-owned
banks. In 2007, the minimum capital base of the commercial banks was increased sharply, and
has given the banks the capital base to expand credit to the private sector. A national
microfinance law that establishes the legal and regulatory framework for the operation of MFIs
has been adopted and a microfinance policy and implementation strategy approved. A micro-
finance apex organization has been established and is providing advice and capacity development
services to MFIs and their clients. Looking ahead, the Government envisages the establishment of
a cooperative savings bank/microfinance institution in every sector (village) to promote saving
mobilization and the use of financial services. There are plans to introduce a loan guarantee
programme on commercial bank lending to SMEs in Rwanda. Resources are being mobilised
to support broader access to credit by SMEs. In this regards, a MoU between BNR and the
Ministry of Agriculture, Livestock and Forestry (MINAGRI) for the implementation of a US $10
million final phase the Rural Investment Facility was signed in December 2008.

4.2.9 Oversight over the non-bank financial institutions and capital markets has been
strengthened through amendments of the BNR Act. An over the counter market was established
with important rules and regulations, and a national education programme on the benefits of
capital markets executed. A formal mid-term review of the FSDP is planned by end-2009 to
explore possibilities of expanding reforms to other areas, including rural and health insurance
schemes.

12
Access to banking services in Rwanda rises marginally to 9 percent when services of savings and credit
cooperatives, through the Union de Banque Populaire (UBPR), are considered.

12
 • Improve governance of public finances

4.2.10 A key strategic priority of the EDPRS is to enhance gains through governance, with
special emphasis on required improvements in the quality of public financial management
systems, and the related institutional and human capacity developments. Recent PFM actions
have included the adoption of a revised Organic Budget Law, a new procurement code, and the
establishment of the Rwanda Public Procurement Regulatory Agency (RPPRA). Other measures
covered the strengthening of governance oversight institutions, the development of systems and
capacity for monitoring budget flows, public accounting and financial reporting, and internal and
external auditing of government agencies both at central and local government levels. A fiscal
decentralization framework that provides for transfers of grants from the central government to
the districts is now in place. Although there has been good progress in PFM reforms, thanks
to the Bank’s previous two budget support operations, substantial challenges remain to be
tackled. To consolidate gains achieved so far, the Government’s reform agenda in this area aims
to enhance the quality of public
expenditure management, as Table 4 Selected PFM Performance Scores for Rwanda
Baseline Target
reflected in progress on the PEFA Indicator 2007 2009/10
index scores (see Table 4). Key Index for multiyear perspective in fiscal
reform areas include, fiscal planning, expenditure policy and budgeting C+ B-
planning, expenditure policy and Index of effectiveness of payroll controls D+ C+
budgeting, payroll controls, and Index on quality and timeliness of annual
preparation and auditing of annual financial statements C+ B-
financial statements, at all levels of Source: PEFA Secretariat – Report on Rwanda, November 2007
government.

4.2.11 To accelerate the PFM reforms, the Government, in consultation with the Bank and
other development partners, developed towards the end of 2008, a PFM Reform Action
Plan that will be implemented over five years (see Letter of Development Policy in Appendix
I). As shown in the Technical Annexes, the PFM Reform Action Plan, 2008-2010, covers reform
measures over key areas of budget planning and execution; controls and internal audit;
accounting and financial reporting; external auditing and oversight; and procurement. The PFM
Reform Action Plan has both intermediate and medium-term outputs and outcomes, and forms
the basis for coordinated donor actions, including funding for capacity building. The Publication
of the PFM Reform Action Plan is a prior action, by March 2009, under PRSSP-III (paragraph
4.2.20). The Government has made good progress in this area. Implementation arrangements for
the PFM Reform Action Plan are already underway. This includes the establishment of the PFM
Reform Steering Committee to oversee the implementation of the reform program, and a PFM
Reform Secretariat that will be responsible for administrative duties. A technical team comprising
of representatives of MINECOFIN, line ministries and autonomous agencies will be constituted
to execute the implementation plan under the supervision of a PFM Technical Committee. Initial
funding for the reforms will be sourced from an existing Multi-Donor Trust Fund with
contributions from the EU, DFID and the World Bank. Looking ahead, the Bank will explore
opportunities for its participation in a coordinated basket fund financing mechanism that the
Government is planning to establish.

4.2.12 Planning and Budgeting: While the MTEF is used for expenditure planning by
MINECOFIN, the momentum for its implementation Government-wide has slowed down,
because its concepts have not been fully integrated into the budget process, particularly at
line ministries. The introduction of the MTEF in 2001 was buttressed by analytical work,
sensitization of all stakeholders and training for staff at central and local government levels. The
MTEF was seen as an important instrument for implementing the first PRSP. However, the
impetus of mainstreaming MTEF across government agencies has been slow. The revitalization

13
of the MTEF is one of the key components of the recently developed PFM Reform Action Plan.
Therefore, MINECOFIN has recently produced an operational manual for the MTEF and
published it in its website.

4.2.13 Within the MTEF process, the Government has identified the strengthening of
performance-based budgeting as a major priority area for reforms. This will involve
introducing a performance-based budgetary process that seeks to ensure that the MTEF structure
facilitates monitoring of the EDPRS outcomes. Initial steps that the Government has taken
towards this goal include the revision of the economic classification of the budget in line with the
EDPRS framework. Further to facilitate monitoring of EDPRS outcomes, the criteria for
expenditures to qualify as priority spending in the annual budget have been revised. In tandem
with these reforms, a gender responsive budgeting process is planned for implementation during
2009. These reforms will be reinforced through training sessions on the MTEF structure
and budget preparation process that will target planning units at both central and local
government levels.

4.2.14 Budget Monitoring and Reporting: The PFM Reform Action Plan aims to strengthen
systems and improve oversight over budget implementation. In September 2006, the Organic
Budget Law (OBL) was promulgated. Further, the Government has launched the development of
SmartGov, an integrated financial management system (IFMIS) with two key modules:
BudgetMaster and PublicBooks (see Letter of Development Policy in Appendix I). BudgetMaster
is used to prepare and execute the budget, and has modules covering commitment control, cash
management, and central treasury payments. PublicBooks, currently under development, is the
general ledger module that collects information from BudgetMaster for the purposes of
public accounting. Pilot testing of PublicBooks and its roll-out to budget agencies is expected to
begin in the first half of 2009. Completing the piloting of the PublicBooks, an accounting
software under the Integrated Financial Management System (IFMS), is a condition precedent to
disbursement of the second tranche, under PRSSP-III (paragraph 6.2.4). Simultaneously, an
integrated personnel payment information system (IPPIS) that is expected to enhance the security
and accuracy of payroll processing, controls and the payment of salaries, is being developed
under the auspices of MIFOTRA. The IPPIS will interface with SmartGov for data sharing and
processing.

4.2.15 Production of monthly, quarterly, and annual financial statements for all levels of
Government is currently, a major challenge. A number of instruments have been put in place
for budget management in accordance with the OBL, namely: (i) Financial Regulations that
became operational in February 2007; and (ii) the Manual of Financial Management and
Accounting, which was published in May 2007. A law establishing the Institute of Certified
Public Accountants of Rwanda (ICPAR) was adopted by Parliament in December 2007. Other
actions taken include the design and dissemination of new reporting formats for both central and
local governments, and the launch of a series of sensitization and training workshops to improve
financial reporting at all levels of government. These efforts enabled the Government to produce
the first ever-consolidated financial statements in May 2007, with the support of a consulting
firm. Because of capacity constraints, a key concern is how the Government will maintain this
momentum of preparing auditable consolidated public accounts going forward. Further, audits of
individual ministries and agencies have identified, as a major concern, the existence of diverse
and inadequate accounting practices across Government. The Bank’s PRSSP-II PCR identified
inadequate coverage of external audits of government agencies as a major concern, and indeed a
measure supporting such audit was missed. Nevertheless, the Government has taken decisive
action and has committed itself to expand the coverage of audits of national and sub-
national government agencies (see Appendix I, Letter of Development Policy). In recognition
of progress made, a measure that is included as a prior action under PRSSP-III is that 55 percent
of Government expenditures (both for central government and districts), for fiscal year 2007, will

14
have been audited by the Office of the Auditor General (OAG), by March 2009 (paragraph
4.2.20).

4.2.16 An initiative to produce monthly, quarterly, and annual financial reports for all
government entities, including local governments, is work in progress. A capacity building
program for public accountants and internal auditors that has both a short term (skills
enhancement) and a long-term (for developing professionals) component is ongoing. A key
concern for the Government and importantly the OAG is the retention, in the public sector, of
skilled and competent financial management staff. In this regard, the Government is developing a
staff retention strategy for OAG that will incorporate monetary incentives, and that is expected to
be implemented in the course of the 2009/2010 fiscal year. These actions are included in the
Government’s PFM Reform Action Plan.

4.2.17 While the Government has made substantial progress towards strengthening the
legal and regulatory framework and institutions relating to public sector procurement,
implementation of reform outcomes remain, unfinished business. An important reform is that
bidders for public procurement contracts now have recourse to appeal contract awards. In this
regard, independent review panels have been operationalized at the national and district levels, in
accordance with the law. There is now a requirement that the outcome of the independent
review of appeals, which was previously an internal Government document, should be
published on the RPPA’s website. Requirement to publish the outcome of appeals by
contractors of public procurement decisions will greatly enhance the transparency and
accountability of public tendering process, and is an important policy measure as outlined in the
Letter of Development Policy (Appendix I). The publication by March 2009 of the 2008 annual
report of the independent panel is a prior action, under PRSSP-III (paragraph 4.2.20).

4.2.18 The Procurement Code stipulates that all procuring entities must prepare and publish
procurement plans indicating the requirements, the process, and schedule of the procurement.
This requirement necessitates all procuring entities to have the capacity to prepare these plans on
time. Capacity building activities are underway, including the recruitment of procurement officers
in all procuring entities, and training courses have been developed and are being provided by the
Rwanda Institute of Administration and Management (RIAM). A strategic plan for capacity
building in procurement has been adopted, and RPPA has signed a MOU with the School of
Finance and Banking (SFB) in Kigali for future collaboration in training. A code of ethics for
staff handling procurement matters is being finalized. A major shortcoming of the current public
procurement regulations is that the tendering procedures do not contain a provision for
justification for restricted or no competition procedures. This weakness including one relating to
lack of procurement audits will be eliminated in the reforms that the GoR plans to introduce
during the fiscal year 2009/2010, as part of the implementation of the PFM Reform Action Plan.

4.2.19 Public investments management: Finally, in view of the EDPRS emphasis on public
investments to, among other objectives, improve infrastructural services and reduce the
cost of doing business, the management of public investments has emerged as a high
priority action in the Government’s reform agenda. As a result, a new public investment
policy that will guide the preparation, selection, and implementation of public investment projects
has been developed (see Letter of Development Policy in Appendix II), and was adopted by the
Cabinet, early 2009. Approval by Cabinet of the Public Investment Policy is a condition
precedent to disbursement of the second tranche under PRSSP-III (paragraph 6.2.4). Based on
this policy, the preparation of a medium-term public investment program (PIP) will be
revitalized. As such, the selection of projects will be based on a rigorous project evaluation
process with clearly laid-out project appraisal criteria. These reform efforts are expected to be
fully operationalized within the 2010/2011 fiscal year.

15
4.2.20 Prior Actions: During country level consultations, the Government demonstrated
that substantial progress had been made in implementing key policy actions that are aimed
at reforming the Table: 5 PRSSP III Required Prior Actions (By End March 2009)
environment for private A: Create an enabling environment for private sector development
sector growth, and • Prior Action #1: Adoption by Cabinet of the following commercial laws
improving financial prepared as part of the business law reform process: Bills on Companies
governance. The prior Act, Solvency, Negotiable Instruments, Business Registration, and
actions that are shown in Competition and Consumer Protection (paragraph 4.2.4)
B: Improve governance in public finances
Table 5 have been carefully
• Prior Action #2: Publication of the Public Financial Management
selected, and they build the Reform Action Plan, 2008-2010 (paragraph 4.2.11)
momentum for reforms in • Prior Action #3: 55 percent of Government expenditure (both central
key areas supported by Government entities and districts) audited by OAG for the fiscal year
PRSSP-III. What is 2007 (paragraph 4.2.15)
remaining now is for the • Prior Action #4: Publication of the 2008 annual report of the independent
GoR to provide evidence panel addressing appeals by contractors of public procurement decisions
(paragraph 4.2.17)
of their fulfillment, prior
to Board approval of PRSSP-III. These measures have been extracted from the CPAF that was
developed by the Government, with wide consultations with key stakeholders, including the Bank
and other development partners. Finally, the prior action relating to audit of Government agencies
(both central government and districts) by the OAG is a key milestone in the acceleration of the
unfinished reforms that the Bank supported under PRSSP-II.

4.3 Financing Needs And Arrangements

4.3.1 As shown in Table 6 the Government reform programme is fully funded during the
timeframe of the implementation of PRSSP-III, covering the mini-budget in 2009, up to fiscal
year 2010/2011. Rwanda’s four largest
Table 6: Financing Government Expenditures
budget support donors – DFID, IDA, EC,
(US$ Million) S1 2009 2009/10 2010/11
and the Bank – are expected to disburse Gov. Revenues
333 741 850
their committed funds as planned. IDA’s Gov. Expenditures
Fifth Poverty Reduction Support Grant 754 1,485 1,595
Agreement was signed in March 2009. Deficit before Grants (421) (744) (744)
Decision to disburse by DFID, and EC will Domestic Financing 12 46 18
be underpinned by successful outcomes of Financing Gap 409 698 726
13
JBSR assessments in April and September. Financed by :
Budgetary Grants:
The resources available under PRSSP-III,
AfDB 33 12 -
amounting to UA 30.3 (US$ 44.46)14
EC 17 40 46
million will be disbursed in two tranches.
IDA 70 70 15
The programme will be frontloaded. The
Bilateral Donors 148 273 170
first tranche of UA 22.3 (US$ 32.72)
million will be released during the 2009 Project Grants/Loans 141 303 495
Source: MNECOFIN, and Bank Staff Estimates
mini-budget to support the Government to
mitigate any adverse effects that may arise from the ongoing global recession. The second
tranche, amounting to UA 8 (US$ 11.74) million will be disbursed during the fiscal year
2009/2010. Suspension of disbursements by other donors will not adversely affects the overall
programme, as the amounts involved are a small proportion of the overall budget support grants.
Additionally, the Government has identified private capital inflows.

13
Committed disbursements by donor for each fiscal year indicated according to the Government’s Budget
Framework Paper, 2009 – 2011/12. Actual disbursements by donor will vary.
14
Based on the March 2009 UA/US$ rate of 1.46736

16
4.4 Beneficiaries Of The Programme
4.4.1 The beneficiaries are the Rwandan population, and therefore, the programmes’ impact is
countrywide. The EDPRS, that is supported by this programme, was elaborated through a
countrywide consultative process involving all major segments of the society.

4.5 Impact On Gender

4.5.1 Rwanda has made substantial progress in areas of political representation, legal and other
institutional reforms to level the playing field for women, and their access to education and other
social services. With the recent legislative elections of September 2008, women now comprise 53
percent of the members of the national legislature. A measure supported by this programme is the
enhancement of the medium term framework for budgeting and allocation of resources to allow
budgets to reflect better, the gender responsive policies of the GoR (see Appendix II). The
integration of such a technique into the budget process will ensure that recent gains on closing
gender disparities are maintained and enhanced. In this regard, the Government, in collaboration
with the United Nations Development Fund for Women (UNIFEM) and other donors, has
initiated the gender responsive budgeting training initiative for planners and budgeting officers at
both central and local government levels to enhance budget agencies’ clarity of roles and
responsibilities for gender equality.

4.6 Environmental Impact

4.6.1 PRSSP-III is classified in Category III according to the procedures for the environmental
and social impact assessment. Given that PRSSP-III is a budget support operation, the policy
changes it supports are not likely to have any significant direct effects on the environment and
natural resources.

V. IMPLEMENTATION, MONITORING AND EVALUATION

5.1 Implementation Arrangements

5.1.1 Responsible institution: The Executing Agency for PRSSP-III is the Ministry of
Finance and Economic Planning (MINECOFIN).

5.1.2 Disbursement: The ADF Grant amounting to UA 30.3 million for a two year period
starting January 2009 and ending December 2010 will be disbursed in two tranches: the first
tranche of UA 22.3 million will cover the 2009 mini-budget15 requirements and will be disbursed
upon the entry into force of the Grant Agreement and fulfillment of the conditions precedent to
the first disbursement. The disbursement of the second tranche of UA 8 million is expected to be
disbursed in May 2010 and will be considered after the satisfactory mid-term review of
programme execution, and subject to GoR satisfying the conditions stipulated in section VI of
this report. The amount of the two tranches and their disbursement schedule were determined (i)
on the basis of the annual resources needs as provided for in the macroeconomic framework for
the mini-budget 2009 and fiscal budget for 2009/2010; and (ii) taking into consideration the
projection of the resource flows to support the Government’s budget during this timeframe. The
ADF will pay the two grant tranches into a special account to be opened by the Treasury with the
BNR.

15
Rwanda became a member of the East African Community (EAC) on 1 July, 2007 after acceding to the EAC
Treaty on 18 June 18, 2007. Accordingly Rwanda's current budget calendar will change beginning 2009. The
2009 mini-budget that will run from 1 January to 30 June 30, 2009 will enable the country to transition to the
EAC budget calendar that runs from 1 July to 30 June.

17
5.1.3 Procurement: Under the PRSSP-III, like in prior Bank Group budget support
operations in Rwanda, procurement will be conducted according to the current national system.
The national system for the procurement of goods and services is deemed acceptable by all
donors in the Budget Support Group. A procurement law, which was published in 2007, is
deemed to be broadly in line with international standards.

5.1.4 Audit: A Public Expenditure and Financial Accountability (PEFA) assessment that was
completed in October 2007, and a Fiduciary Risk Assessment (FRA) that was conducted by
DFID and the Bank in 2008, found Rwanda’s PFM systems to be sound, and the overall level of
fiduciary risk to be moderate. The GoR and the seven development partners that provide budget
support including the Bank signed a MOU in September 2008 to guide joint actions for the
effective delivery and monitoring of use of budget support grants. The ADF will rely on the
complete report on the implementation of the State Budget of each previous year covered by
PRSSP-III that the Auditor General submits to the Chamber of Parliament annually. The Office
of the Auditor General (the supreme audit institution of Rwanda) will transmit such reports to the
Bank upon their approval by Parliament.

5.2 Monitoring And Evaluation Arrangements

5.2.1 Responsible institutions: MINECOFIN will assume lead responsibility for
implementation of the PRSSP-III. To this end, it will ensure that the ministries and structures
involved fully play their respective roles in the execution of the reforms and measures under their
jurisdiction. In particular, the External Financing Unit, under the supervision of the Permanent
Secretary and Secretary to the Treasury of MINECOFIN, will ensure the successful
implementation of the programme and its monitoring and evaluation. This unit, which also acts as
the secretariat of the BSHG, has in the past demonstrated its technical capacity to coordinate the
implementation of the PRSSP’s of the ADF, PRGF of the IMF, PRSC’s of the World Bank, as
well as interventions of the European Union and of the bilateral donors. Specifically, the External
Financing Unit, MINECOFIN, will be responsible for the following activities under PRSSP-III:
(i) reports of the BSHG’s bi-annual review meetings (April and September) covering the status of
budget implementation in priority sectors of the EDPRS as defined in the CPAF; and (ii)
monitoring resource mobilization and program implementation on behalf of the ADF and other
development partners.

5.2.2 Monitoring: The Bank will rely on existing institutional arrangements for monitoring
of the EDPRS, and the CPAF, as has been agreed by the donors supporting the budget and the
GoR, as framework for monitoring and evaluation. The institutional framework for monitoring
the EDPRS is built on the work of the National Institute of Statistics of Rwanda (NISR), and the
monitoring activities of the EDPRS’ sector working groups that are coordinated by an EDPRS
monitoring Secretariat in MINECOFIN. As shown in Appendix II, the CPAF prioritizes a few
key indicators and policy actions of the EDPRS for monitoring during the bi-annual Government-
donor Joint Budget Support Reviews (JBSRs). Individual budget support partners have the
flexibility of selecting from the CPAF those indicators that will serve as triggers for disbursement
of their funds. Once finalized, a scoring mechanism that has been discussed by the Government
and the donors will provide an overall performance rating on the CPAF indicators. The Bank
through its field office in Rwanda will continue to engage the Government and other donors in
refining the policy measures in the CPAF as the policy context evolves. Such revisions are
provided for in the Partnership Agreement.

5.2.3 The monitoring process of the indicators under the CPAF and EDPRS is similar, and
contains a number of required participatory reviews and reports. An EDPRS progress report is
prepared each year, building on the results of the monitoring process. At sector level, sector

18
review reports are also prepared and review meetings are organized where all stakeholders,
including development partners, participate. JBSRs by the Government and the budget support
donors are held twice a year to review the data and evaluate progress on the EDPRS. One
meeting is primarily backward looking as it reviews the performance during the past year,
including outturns on the budget of the last fiscal year. The forward-looking review meeting
focuses on the plans for the budget of the following year and the medium term expenditure
framework. The JBSR also discusses the results of the monitoring exercises, the joint sector
reviews, and the EDPRS progress report, and assesses progress on the CPAF indicators. The
Bank’s supervision of the PRSSP-III will primarily be through the participation in the two JBSRs,
and the participation of the Rwanda Country Office in the regular monitoring activities of the
BSHG at country level including, engaging implementing agencies and other development
partners as necessary.

5.2.4 Evaluation: To promote mutual accountability, a Partnership Agreement that outlines

the procedures and modalities for a multi-donor approach to budgetary support was signed by the
Government and the key budget support donors in October 2008. Accordingly, all key budget
support donors are expected, during 2009, to fully align their monitoring and evaluation
framework to the CPAF measures. The quantitative indicators that are included in PRSSP-III’s
Results Based Logical Framework are derived from the CPAF (see Appendix II), and have been
agreed with the GoR as priority measures for monitoring progress under this programme. At the
end of the programme’s implementation, the Bank and the Government will prepare a joint
Program Completion Report (PCR) that will evaluate PRSSP-III’s implementation, the outcomes
achieved vis-à-vis the envisaged, and derive lessons that will inform future interventions.

VI. LEGAL DOCUMENTATION AND AUTHORITY

6.1 Legal Documentation

6.1.1 The financing instrument that will be used for this operation is an ADF Grant of UA 30.3
million in the form of budget support to the Republic of Rwanda from the ADF-XI allocation.
The Grant will be disbursed in two tranches, upon fulfillment of the conditions outlined below.

6.2 Conditions Associated With Bank’s Intervention

6.2.1 Prior Actions: Before this Grant proposal is presented to the ADF Board for approval,
the Government of Rwanda shall provide evidence to the Bank that measures outlined in
paragraph 4.2.21 (see Table: 5), as Prior Actions, have been implemented.

6.2.2 Entry into force of the Grant Agreement shall be subject to fulfillment of the
provisions of section 5.01 of the General Conditions.

6.2.3 Conditions precedent to disbursement of the first tranche of UA 22.3 Million: The
disbursement of the first tranche of the ADF Grant will be subject to maintenance by the
beneficiary of an appropriate macroeconomic framework, and fulfillment of the following
specific conditions:
• Transmit to the Fund the bank references for a Treasury account with Banque Nationale
du Rwanda (BNR), that is intended to receive the Grant resources.

6.2.4 Conditions precedent to disbursement of the second tranche of UA 8 Million: The

obligation for the Fund to disburse the second tranche of the grant will be subject to maintenance
of an appropriate macroeconomic framework, and positive outcome of the mid-term review.
Furthermore, the beneficiary shall fulfill the following specific conditions:

19
 • Transmit to the Fund, evidence of launching of the Revenue Authorities Digital Data
Exchange (RADDEX) system at borders with Tanzania and Uganda (paragraph 4.2.5).
• Transmit to the Fund, evidence of the establishment of a private credit reference bureau
(paragraph 4.2.7).
• Transmit to the Fund, evidence of complete piloting of the PublicBooks, an accounting
software, under the Integrated Financial Management System (paragraph 4.2.14).
• Transmit to the Fund evidence of the approval by the Cabinet of the Public Investment
Policy (paragraph 4.2.19).

6.3 Compliance With Bank Policies

6.3.1 This programme complies with all applicable Bank Group policies and guidelines,
including: (i) Bank Group provisions on non-concessional debt accumulation policy; (ii) the 2004
Guidelines for DBSL operations; (iii) the Bank’s Governance Strategic Directions and Action
Plan, 2008–12; and (iv) the Environmental and Social Assessment Procedures (ESAP), and
requirements on crosscutting issues.

VII. RISKS MANAGEMENT

7.1 The following risks and mitigation measures have been identified:

7.2 Risk #1: Political risk: The continued presence of the Forces Democratic de Liberation
du Rwanda (FDLR) in eastern DRC remains a security risk for Rwanda as well as a source of
tension in the region. Recently, two development partners suspended their budget support
disbursements in reaction to alleged actions by Rwanda in eastern DRC. Further, the presence of
the FDLR in the DRC has continued to undermine the restoration and normalization of
commercial relations that would provide mutual socio-economic benefits to the people in Rwanda
and DRC.
• Mitigation: The recent launching of joint operations by the Rwandan and Congolese
forces to root out the FDLR is a step in the right direction. Further, a MoU between the
Government and budget support donors include an underlying principle that binds parties
to promote peace in Rwanda and the region. Internally, Rwanda remains secure and
politically stable.

7.3 Risk #2: Macroeconomic risk: Inflation accelerated in the later half of 2008 mainly due to
domestic demand pressures and rising imported food and fuel prices. Further, exogenous shocks
to exports or imprudent borrowing on non-concessional terms could lead to a rapid deterioration
of Rwanda’s debt dynamics over the medium-term.
• Mitigation: The Government, in consultation with the IMF, has taken actions to stem the
recent surge in inflation and BNR will continue to take necessary measures to curb
inflationary pressure. Regarding debt sustainability concerns, the GoR is putting emphasis
on export promotion. Further, it adopted in 2008, a comprehensive debt management
strategy that will guide future public borrowing needs.

7.4 Risk #3: Risk related to the impact of the global recession: Rwanda is vulnerable to the
ongoing global recession. If the recession continues beyond 2010, Rwanda could be unfavourably
impacted through reduction in inflows of ODA, foreign direct investments, remittances, trade
finance, and export revenues. This could slow down growth and progress towards meeting the
MDGs.
• Mitigation: A committee is in place that is advising the Government on measures to be
taken to manage the impact of the global recession. Further, as a good performer,
especially on the governance front, Rwanda’s ODA would tend to be protected, at least in
the medium-term, the timeframe required to implement reforms under PRSSP-III.

20
 VIII. RECOMMENDATION
8.1 Management recommends that the Board of Directors approve the proposed Grant of UA
30.3 million from the resources of ADF-XI to the Government of Rwanda in the form of general
budget support for the purposes and subject to the conditions stipulated in this report.

21
 Appendix I
RWANDA
Poverty Reduction Strategy Support Programme (PRSSP-III)
Appraisal Report

Letter of Development Policy

Dr. Donald Kaberuka,
President of the African Development Bank Group
ADB Temporary Relocation Agency (Tunis)
Angle: Av. du Ghana, Rue Pierre de Coubertin et Rue Hedi Nouira
BP. 323 1002, Tunis Belvedère
TUNISIA

Dear President Kaberuka,

RE: LETTER OF DEVELOPMENT POLICY FOR THE:

POVERTY REDUCTION STRATEGY SUPPORT PROGRAM (PRSSP) III

1. We thank the African Development Bank (AfDB) for supporting the implementation of our
reforms under both, our first Poverty Reduction Strategy Paper (2002-2005), and the second
medium-strategy towards attainment of the long-term Rwanda Vision 2020 objectives, the Economic
Development and Poverty Reduction Strategy (EDPRS), for the period, 2008 to 2012. AfDB’s
support, through the Poverty Reduction Strategy Support Programme (PRSSP) I and PRSSP II.
These AfDB’s supported programmes, have enabled the Government of Rwanda (GoR) to pursue
wide ranging reforms aimed at improving good governance and the business environment for a
vibrant private sector.

2. As we outlined in the Letter of Development Policy for the Poverty Reduction Strategy
Support Programme (PRSSP) II, the GoR continues to be strongly committed to the implementation
of an ambitious reform agenda to increase participatory growth and reduce poverty. The reform
program under the EDPRS prioritizes Rwanda’s growth and human development, and emphases
decentralization, and a greater role for the private sector. These priorities are highlighted in three
EDPRS’s flagship programs: Sustainable Growth for Jobs and Exports; “Vision 2020 Umurenge”;
and Governance.

3. The first flagship, sustainable growth for jobs and exports, focuses on the development of
skills and capacity for productive employment, the improvement of infrastructure, especially energy,
transport and communication, the promotion of science, technology and innovation as well as the
widening and strengthening of the financial sector. The second flagship, the Vision 2020 Umurenge
Programme (VUP), is designed to accelerate the reduction of extreme poverty by means of a highly
decentralized integrated rural development programme. The objective of the third flagship is to
improve governance in several areas, covering among others a wide range of public sector reforms
and the improvement of political, administrative and financial accountability. In addition, it is aimed
at building public sector capacity and promoting employment. We continue our commitment to
reforms in these key areas.

4. Substantial progress has been made in the first year of implementation of the EDPRS, as
outlined below. Nevertheless, Rwanda still faces many challenges. We are therefore writing to
request approval of the third PRSSP to support the second year of implementation of the EDPRS.

22
Recent developments and main achievements

5. The economic environment in Rwanda is characterized by continued stability in spite of

adverse effects of exogenous shocks. Real GDP growth accelerated to 7.3 percent and 7.9 percent in
2006 and 2007, respectively. Average annual inflation, however, has increased substantially in 2008
due to the increase in food and fuel prices, which has also led to a widening of the current account
balance despite an impressive increase in exports in coffee, tea, minerals and tourism. The fiscal
program remains on track with revenues again outperforming their targets and prudent expenditure
policies.

6. The global economic slowdown has so far had only a limited effect on Rwanda’s economy,
which is likely to change in 2009. Under the auspices of the Ministry of Finance and Economic
Planning, a Global Financial Crisis Steering Committee has been established to manage the impact
on Rwanda of the global financial crisis. Growth projections have been revised downwards to 6% in
2009 to reflect the dampening effects of the slowdown on investment outlays and faltering export
performance. The negative impact has been taken into account by the GoR, reflected in limited
spending and additional programs in the agriculture sector, for example, the restructuring of the crop
intensification program and a voucher system for fertilizer for smallholders. The risks remain,
however, on the downside and additional financing needs might arise during the course of the year to
cope with the downturn of the global economy.

7. Nevertheless, EDPRS implementation is on track and the medium term economic outlook is
favorable. However, in order to achieve its medium-term objectives, Rwanda is addressing the most
important obstacles to economic growth (severe infrastructure gap and skilled-labor shortage)
through increasing investment in physical and human capital. Yet it is critical that the required
scaling up of public investment is well justified, prepared and implemented to deliver the desired
results, especially given the limited resources. The GoR is therefore focusing on improving the
prioritization and efficiency of expenditures. Efforts are being made to strengthen the institutional
framework for the Public Investment Program (PIP). To date, a public investment policy has been
drafted and guidelines for identifying investment selection criteria and project prioritization that
maximize the returns on investment, and safeguard public debt sustainability are being developed.
The Government will also soon be embarking on a process to institutionalize Public Expenditure
Reviews with the aim of strengthening public expenditure management and monitoring of spending.
The intent is to improve accountability of line ministries and to strengthen the prioritization process
within sectors.

8. Substantial achievements have been accomplished in the area of aid harmonization, leading
to improved coordination between the GoR and the donor community and better alignment of
policies. The main achievements in that regard are the recently completed Common Performance
Assessment Framework (CPAF) and the Donor Performance Assessment Framework (DPAF)—key
components of the newly established EDPRS integrated monitoring framework—aimed at enhancing
results based management and strengthening mutual accountability. In addition, sector wide
approaches have been developed for a number of sectors, including agriculture, energy and health
and are currently in preparation for others, such as transport.

9. The CPAF, which consists of a set of indicators and policy actions selected from the EDPRS
Results and Policy Matrix, forms the basis for partners’ joint assessment of the GoR’s performance
in the implementation of the EDPRS. The CPAF is complemented by the DPAF, which consists of a
set of indicators and actions drawn from international and national agreements relating to aid and its
effective delivery, and forms the basis for Government’s assessment of donor performance.
Reviews in the context of both the CPAF and DPAF are synchronized around an annual cycle.
Reporting of performance against individual CPAF indicators is led primarily at the sector level in
advance of the Joint Budget Support Review (JBSR). Sector performance reports are prepared in
time for further discussion at the JBSR.

23
10. The CPAF also draws from the recently concluded Joint Governance Assessment (JGA),
which aimed to establish a common understanding of governance problems, and priorities, as well as
a framework for assessing progress towards implementation of the governance agenda on the basis
of agreed indicators and benchmarks. Overall, the JGA found that Rwanda has achieved impressive
progress since 1994 in areas of governance assessed. The JGA monitoring indicator framework has
been harmonized and integrated within the existing EDPRS results monitoring framework and the
coordination of implementation and monitoring of the JGA findings will be taken forward by the
EDPRS Governance Implementation Working Group.

Progress and challenges of EDPRS implementation

Flagship 1: Sustainable Growth for Jobs and Exports

11. Education: Jointly with other development partners, the African Development Fund (ADF)’s
UA 15 million Education Sector budget support grant is supporting the implementation of Rwanda’s
5-year Education Sector Strategic Plan (ESSP) that is focused on providing equitable access to
quality education. Good progress has been made on the implementation of ESSP: Rwanda is well on
its way to achieve universal primary education with gender parity and MINEDUC has started down
the path of preparing a comprehensive post-basic education strategy with the formulation of a
technical and vocational education and training (TVET) policy and a higher education policy.

12. However, critical ESSP implementation challenges pertaining to the quality of education still
exist. The current pupil-teacher ratio of 71:1 is way above the MDG target of 45:1, there is still slow
progress in universal completion of quality primary education, with the primary completion rate
(PCR) of 51.7%, a repetition rate of about 15.8%, and a drop-out rate of 14.6%. The Government’s
response to the quality challenge has focused on increasing the supply of qualified teachers. From
2007 capitation grants have allowed schools to hire contract teachers. In addition, the GoR has
recently approved a Teacher Management and Development Policy and is now developing a
strategic plan that will address quality challenges.

13. Health: The GoR has maintained its reform program to the delivery of health services. The
law governing mutuelles has been adopted and health services have been scaled-up with the
expansion of Performance-Based Financing (PBF) and of Community Health Insurance through the
Mutual Insurance system.

14. Preliminary results from the interim Demographic and Health Survey done in April 2008
show that there has been a marked improvement in sector performance indicators linked to service
delivery. For example, the under-five mortality rate has decreased by more than 32% in recent years
(from 152/1000 in 2005 to 103/1000 in 2008) while the percentage of births attended by skilled
health workers has increased by about 33% (from 39% in 2005 to 52% in 2008) and the percentage
of pregnant women receiving Intermittent Presumptive Treatment for malaria has increased by more
than 128% (from 28 in 2005 to 64 in 2008). The same improvement has been documented for family
planning indicators, with the contraceptive prevalence rate shooting up from 10% in 2005 to 27% in
2008.

15. Funding remains a challenge in the health sector. Resources available for the health sector
are below the amounts required to effectively address sector priorities. Moreover, the high degree of
aid dependency, where 53% of total health expenditures come from donors, is also problematic.
Rwanda’s health sector has 21 official donors, disbursing 74 percent of their total support via more
than 40 NGOs, and a larger number of local community service and community-based organizations,
making it difficult for the GoR to ensure resources translate into results. To address this, the
Government will continue its efforts to further develop the sector-wide approach (SWAp) and
medium-term expenditure framework (MTEF)

24
16. Electricity and Urban Water Supply: Rwanda has prioritized the development of alternative
lower cost indigenous energy sources of power generation to meet growing demand. The successful
piloting of the methane gas power project on Lake Kivu proves the viability of methane gas for
electricity generation and offers the potential to replace the existing costly thermal generation.
Looking forward, a number of lower cost generation projects are under various stages of
development. With the arrival of the International Development’s Association (IDA)’s financed
Jabana HFO Power Station (20MW, early 2009), the Rukarara Hydro Power station (9.5 MW, early
2010) and the Nyabarongo Hydro Power station (27.5 MW, 2012) national generation capacity will
increase more than 50%, paving the way for a gradual reduction of electricity tariffs to reach a cost-
reflective tariff level by 2011. In addition, the Government has recently embarked upon a sizable
micro-hydro development program to provide power to rural villages and towns and an energy
efficiency program is underway.

17. Recent Government reform initiatives are enabling modernization of the sector and its ability
to step up and perform its due role in enabling Rwanda’s development goals. Notably, several laws
which together define the emerging sector structure and institutional framework - including GoR’s
policy to increase private sector investments primarily in generation and off-grid electricity
distribution - have been approved. These include, besides the Electricity Law: the law to unbundle
the national monopoly and vertically integrated utility ELECTROGAZ, into separate electricity and
water parastatals: RWASCO (Rwanda Water and Sanitation Corporation) and RECO (Rwanda
Electricity Corporation); laws to set up the Rwanda Utilities Regulatory Agency (RURA) and
National Energy Development Agency (NEDA). Furthermore, the Government plans to update the
energy sector policy note, to include a framework for decentralization and develop a comprehensive
energy strategy that further emphasizes the development of alternate energy sources and private
sector participation in the sector. Continuing efforts will be made to improve the operational
efficiency of Electrogaz, the public utility responsible for electricity and urban water supply and
distribution.

18. Transport: The transport sector improvement program in the EDPRS aims to: (i) improve
transport links internally and internationally; (ii) reduce and keep transport costs under control; (iii)
improve the institutional framework and strengthen the capacity of partners involved in the sector;
(iv) improve road safety; (v) achieve sustainable financing of road maintenance; and (vi) sustain the
preservation of roads rehabilitated or constructed.

19. In line with the program, the GoR has developed a transport strategy that sets clear priorities
for road maintenance; explores options for increasing cost recovery and additional sustainable
funding (subsidy) mechanisms, examines the role of a road management agency with sufficient
independence from central government operations and the Road Fund, and provides clear guidelines
and criteria for the choice of investments in the sector. As part of its commitment to the program,
the Government is also giving priority to improving regional transportation links. Both Rwanda and
Burundi have undertaken to develop a 500 km road linking the country with neighbouring Tanzania
to reduce their overdependence on Kenya's Mombasa port. Progress in this front is good, thanks to
the ADF’s Kicukiro - Kirundo Road Project’s grant of UA 15.3 million that will link Rwanda and
Burundi. Further, the ADF is financing a feasibility study for the Isaka – Kigali Railway. Rwanda is
also expected to benefit from regional efforts to rehabilitate key corridors, such as the World Bank’s
East Africa Trade and Transport Facilitation project.

20. Water Resources, Supply and Sanitation: Rwanda is on track to reach the water and
sanitation MDGs, thanks to donor support, including the ADF’s UA 11.77 million grant for the
Drinking Water and Electricity Supply Project whose implementation started in 2006. However,
progress in increasing access to water supply has not been met with similar improvements in access
to proper sanitation facilities. While fairly robust policies and nation-wide programs are in place for
water supply, this is not the case for sanitation. Translating commitments to improve sanitation into
operational strategies and large scale programs would need further elaboration of the current policies
concerning sanitation. The Government is therefore updating its Water and Sanitation Policy to

25
address sanitation issues, along with a number of emerging issues not dealt properly under the
current policy framework including: Sector financing mechanisms and facilitated access to funding
for decentralized actors (districts, communities, operators); Institutional and funding arrangements
for advise and technical support to decentralized actors; Tariff systems taking into the differences in
water abstraction and production costs; the strengthening of sector-wide M&E systems; and the
regulatory oversight of local water supply systems in the context of decentralization.

21. Significant institutional changes have recently taken place to increase efficiency in
operations geared towards advancing water and sanitation development initiatives. In addition to the
unbundling of ELECTROGAZ into separate utilities, the responsibility for water and sanitation
facilities and services is now under the Ministry of Infrastructure (MININFRA) while water resource
management is under MINIRENA (Environment and Natural Resources). While MININFRA will be
responsible for sector policies, strategies and M&E, a separate agency, Rwanda Water and Sanitation
Agency (RWASA) will be established under the Ministry for program coordination, planning,
funding and implementation. In addition, the Ministry of Health (MINISANTE) has taken the lead
role for the promotion of hygiene at community level. These changes have made it necessary to
clarify institutional roles and set up coordination mechanisms at two levels: first, among central
agencies directly involved in water supply and sanitation, namely: MININFRA, the proposed “Water
and Sanitation Agency”, RWASCO and RURA (the multi-sector regulator); and, second, with other
ministries involved in the water resource management (MINIRENA), local governments
(MINALOC), public health (MINISANTE) and Education.

22. Agriculture: The Government of Rwanda recognizes the importance of the agricultural
sector in achieving the overall growth and poverty reduction objectives. However, agriculture, which
supports 80 percent of the population, is highly susceptible to shocks (particularly weather-related)
and has expanded slowly because of low productivity and poor land use practices. In line with this,
the Government has recently updated its sector strategy, the Strategic Plan for the Transformation of
Agriculture (SPAT II) aligned around four strategic axes: (i) Physical resources and food
production: intensification and development of sustainable production systems; (ii) Producer
organization and extension: support to the professionalization of producers; (iii) Entrepreneurship
and market linkages: promotion of commodity chains and the development of agribusiness; and (iv)
Institutional development: strengthening the public sector and regulatory framework for agriculture.

23. Given the limited scope to increase arable land, vulnerability to shocks, and a high rate of
population growth, emphasis is being put on increasing agricultural productivity through improving
water management, controlling soil erosion, intensifying the use of fertilizer, integrating livestock
development into crop farming, and enhancing extension services. The planned LWH project and the
crop intensification program, currently being expanded provide the opportunity to address some of
the fundamental constraints to agricultural growth in Rwanda.

24. Export Promotion: The adoption of the export promotion strategy has already yielded
results, with an average annual growth of 22.8 percent of exports of goods and non-factor services
between 2004 and 2008. Total exports of goods and non-factor services amounted to USD 332
million in 2007 compared to USD 200 million in 2004 and are expected to increase further to USD
381 million in 2008. The increase can be mainly attributed to higher commodity prices and export
volumes of coffee, tea, and minerals as well as an increase in tourism arrivals.

25. To strengthen and accelerate progress made so far, the Government’s export promotion
strategy will continue to focus on enhancing productivity in the traditional sectors and diversifying
the export base in the coffee, tea, and tourism sectors.

26. Financial Sector: Further progress was made in reforms to develop and strengthen the
financial sector. Key measures in 2008 include: (i) Increased capital requirements for banks and
microfinance institutions; (ii) An over-the-counter debt market launched in January; (iii) Union des
Banques Populaires du Rwanda – a large network of independent credit cooperatives – was

26
transformed into a commercial bank in February; (iv) Cabinet approved the decree establishing the
National Payments Council and the GoR adopted a National Payments Strategy to improve the
payments infrastructure and address the development of basic payment services (v) The national
electronic payment system switched to new management; (vi) Parliament passed legislation
concerning Anti-Money Laundering and Combating the Financing of Terrorism in June and
organization and supervision of the insurance industry in July; (vii) Work continued at the National
Bank of Rwanda to prepare for insurance supervision and consolidated banking supervision and to
develop a comprehensive internal audit manual; (viii) The Accountants Bill requiring all financial
institutions, large companies, and public companies to comply with International Auditing Standards
(IAS) and International Financial Reporting Standards (IFRS) was passed by Parliament and (ix) A
private credit bureau that also operates in Tanzania and Uganda was granted a license in October.

27. However, several challenges remain. Poor access to credit is a major obstacle to private
sector development, particularity small and medium enterprises (SME)’s. It is estimated that only 3
percent of the population use the services of commercial banks, going up to about 9 percent if the
services of the Banque Populaire (BPR) are included.

28. Going forward, the agenda for financial sector reforms, based on the Financial Sector
Development Plan cover a wide range of areas including: improving banking services and access to
credit, modernizing the national payments systems, developing long-term finance, capital markets
and a secondary mortgage facility, strengthening legislation over contractual savings and
investments, and promoting the stability of the financial sector. The recently approved ADF grant of
UA 5 million under the Competitiveness and Enterprise Development Project (CEDP) II, will have
favourable impacts on its beneficiaries including improving access to credit by availing credit
profiles of borrowers, and enhancing credit and risk-based supervision.

29. Private Sector Development: The Government is committed to improving the legal
environment affecting private sector development. Drafting and reforms of fourteen major business
laws started in early 2006. Improvement of these laws are expected to enhance the overall business
environment and, consequently, the doing business (DB) indicators, and provide an important
synergy with the capacity building efforts in this area under ADF’s CEDP II. Three laws have
already been voted (business registration services agency; law establishing commercial courts; and
law on arbitration, conciliation and mediation). Validation or legislative process is ongoing for
eleven draft bills (companies act; insolvency; business registration procedures; negotiable
instruments; competition and consumer protection; provisions applicable to private financed
infrastructure; labour; contract law; secured transaction; condominium; and electronic transactions).

30. A doing business unit has been established within the Rwanda Investment and Export
Promotion Agency (RIEPA). RIEPA has been integrated within the recently established Rwanda
Development Board and will continue to spearhead the implementation of the doing business action
plan and other legal reforms affecting private sector development. Efforts are underway to install the
Revenue Authorities Digital Data Exchange (RADDEX) system, an electronic exchange of
information system, which will ease doing cross border trade. Finally, the Ministry of Justice is
planning to establish a permanent commission for legal reform. The Commission will replace a
temporary task force set up within the Ministry to review all the fourteen commercial laws.

Flagship 2: Vision 2020 Umurenge

31. Social Protection: The Vision 2020 Umurenge Program (VUP) flagship aims to eliminate
extreme poverty by the year 2020 through social protection programs, development of productive
activities, micro-credit, and direct support to households in the form of transfers and community-
based services. The program will be implemented in the poorest Sector (Umurenge) in each of the
30 Districts, for a total of 30 Sectors. Implementation of the VUP will be planned and coordinated
by the Sector administrations with participation at the local (Umudugudu) level and with the
Districts responsible for technical support and supervision.

27
32. Weak administrative capacity at the Sector level poses a significant challenge to program
implementation. Efforts continue to improve the weak administrative capacity at national, sector and
district levels. With funding from Rwanda’s Decentralization and Community Development Project
(DCDP), staffing of the Ministry of Local Government (MINALOC) staffing has been augmented by
the arrival of its National Coordinator for VUP, the first of five national appointees and three
international appointees (funded by DFID) who will constitute MINALOC’s VUP management.
Decentralized staffing at Sector (Umurenge) level has also been augmented with DCDP funding by
appointing a program manager and a financial specialist for each of the 30 pilot Sectors. Training of
Sector staff in VUP procedures and plans has also begun. MINALOC has completed preparation of a
revised set of VUP program manuals and begun pilot implementation of VUP in several Sectors,
with the number constrained by funding limitations. It is also working, in conjunction with the
Cluster Group for Social Protection, to address the EDPRS commitment to develop a strategy for
social protection in relation a variety of vulnerable groups.

33. To ensure that program impact is measured in the long term, a database is being set up and
efforts are being made to ensure that emerging VUP data allows monitoring against CPAF
indicators. Furthermore, data collection is underway to bolster baseline ubudehe data, with the aim
of providing a more reliable baseline for targeting.

Flagship 3: Improve Economic Governance and Develop Implementation Capacity

34. Public financial management: Reform efforts in public financial management are beginning
to show results as confirmed by the Public Expenditure and Financial Accountability (PEFA) report
published in July 2008. During the course of the year, the operational manual for the Medium Term
Expenditure Framework was completed, the PFM reform strategy and the action plan for 2008-2012
was finalized, Execution reports of central government transfers to local governments for January-
June 2008 were published. The consolidated government financial statements for 2007 were
completed by end-March 2008 and subsequently approved by the Cabinet. A medium-term debt
management strategy with clear limits for loans and guarantees that are consistent with the
provisions in the Organic Budget Law was developed, and Parliament passed a law transforming the
National Tender Board (NTB) into the Rwanda Public Procurement Agency. In line with identified
needs, capacity building and training in PFM continued during the course of the year.

35. Further steps will be taken to strengthen the public financial management (PFM) system.
The Government will begin implementing its new medium-term strategy for PFM reform. As part of
the broader strategy, the PFM action plan for 2009 includes measures in the following areas:

• Economic Management and Budgeting: Build capacity for research and macroeconomic
modelling and establish a macro database; enhance the use of MTEF, government-wide; align
the budget calendar to practices within the East African Community; clarify reporting
relationships and reporting formats for sub-national government units; and establish an
independent tax appeal mechanism.
• Financial Management and Reporting: Reorganize and strengthen the Office of the Accountant
General and the Office of the Director of Administration and Finance in ministries,
departments, and agencies; develop a policy and strategy for government portfolio management
and clear guidelines on borrowing; start introduction of SmartGov (the new integrated financial
management information system, that include an accounting module, known as PublicBooks);
and approve the software for the new integrated personnel and payroll information system.
• Public procurement: Adopt and implement the new organizational structure of the Rwanda
Public Procurement Authority; promote accountability and transparency in public procurement
through the publication of the reports of the independent review panel; and conduct a capacity
needs assessment in central government ministries and agencies and sub-national government
units to ensure sufficient staffing.

28
• Budget Execution Oversight: Conduct an organizational review of the Office of the Government
Chief Internal Auditor and internal audit units in ministries, departments, and agencies and sub-
national government units; prepare external audit regulations; and expand the coverage of audits
of national and sub-national government agencies by the Office of the Auditor General.

36. Fiscal Decentralization: Efforts to advance the fiscal decentralization program have focused
on improving the intergovernmental transfer system, along with reporting mechanisms and the
framework for oversight. A review of the existing grant allocation practice was undertaken and
guidelines for the allocation formulae for block grant and sector earmarked grants have been
developed.

37. Reporting templates have been revised and compliance to the quarterly reporting
requirement by districts has improved, enabling the timely publication of bi-annual transfer
execution reports. To facilitate monitoring efforts, all district bank accounts were consolidated and
transferred to the BNR. Furthermore, a Fiscal Decentralization Steering committee chaired by
MINECOFIN is in place and active. This committee deals with all issues regarding fiscal
decentralization with an aim of making it more effective and result-oriented

38. Monitoring and Evaluation (M&E): In order to monitor and evaluate the performance of the
EDPRS, the Government of Rwanda has developed an Integrated Results and Performance
Framework consisting of three components: a National Results and Policy Matrix, a Common
Performance Assessment Framework and a Development Partners’ Assessment Framework.

39. A Results and Policy Matrix linking EDPRS results measurements and policy actions for all
key sectors has been developed. An EDPRS Central Monitoring and Evaluation Secretariat
responsible for producing the annual EDPRS progress reports has been established in MINECOFIN
and M&E officers in all sector ministries have been recruited to support the collection of relevant
EDPRS sectoral progress data. Capacity gaps have been identified in both areas of M&E and
Statistics and are being addressed through a combination of training and exchange of experiences as
part of an M&E Community of Practice that has been created.

40. The National Institute of Statistics (NIS) has been integrated in the EDPRS M&E system.
Emphasis has been placed on strengthening the capacity of NIS, seen to be critical for
implementation of the EDPRS M&E framework and a National Statistical Development Strategy
(NSDS; 2007-11) has been prepared. This strategy will align statistical production with EDPRS and
sector monitoring requirements, and will support the enhancement of statistical capacity. To date,
the NIS has completed development of metadata, to support the CPAF

41. Civil Service Reform: Rwanda’s civil service reform has registered some progress on
discrete tasks, such as the completion of functional reviews for all ministries, completion of a
comparative pay study, development of Human Resource Procedures manuals and establishment of a
civil service reform sector working group. Work is also underway to extend the functional review
process to all public agencies, a national skills audit and a national census of employees are on-
going, and an integrated personnel and payroll system is being developed.

42. However progress overall remains patchy and slow, with no discernable evidence that the
sum of core reform initiatives led by MIFOTRA is resulting in significant improvement in public
service efficiency or effectiveness. Progress appears to have been hampered principally by the lack
of a sufficiently comprehensive and overarching strategic framework, insufficient capacity within
MIFOTRA (especially on analysis, planning and M&E) and poor co-ordination among stakeholders.
Therefore, four key developments/measures deemed essential for the future of civil service reform in
Rwanda are being prioritized by MIFOTRA: the development of a new strategic framework,
continued strengthening of co-ordination mechanisms at a policy, technical and management level,
the continued engagement of higher authorities and strengthening the capacity of MIFOTRA.

29
Support Under PRSSP-III

43. Building on the accomplishments under the previous two ADF supported programmes and in
line with the goals and objectives highlighted in the EDPRS, PRSSP-III will support our efforts to
create an enabling environment for private sector development and improve the effectiveness,
transparency and accountability in the use of public financial resources. The expected outcomes of
the programme will be: (i) an improved business environment; (ii) deepening access to financial
services, especially by small and medium-sized enterprises (SMEs); and (iii) improved public
financial management in areas of expenditure policies, budget preparation, execution and
monitoring; procurement, and accounting and auditing at central and local government levels.

44. While we recognize that Rwanda still faces many challenges and, the Government remains
committed to implement the EDPRS and achieve sustainable economic growth and a substantial
reduction in poverty. We thank the African Development Bank for its continued support as we
pursue this objective.

Yours Sincerely

30
 Appendix II
RWANDA
Poverty Reduction Strategy Support Programme (PRSSP-III)
Appraisal Report

Operation Policy Matrix

The Common Performance Assessment Framework (CPAF) [An Extract]16

EDPRS Expected Performance Public Policy Actions

Strategic Indicators Baseline Targets Targets Source of Policy Key Policy Benchmarks/Outputs by Year Responsibility
Outcomes 2006 2009/2010 2010/2011 Data Action Centre
EDPRS FLAGSHIP PROGRAM 1: GROWTH FOR JOBS AND EXPORTS
EDPRS Strategic Objectives: (i) Increased Economic Growth; and (ii) Enhancing Population Development – Paragraph 4.2.2
1. Enhanced 1.1 Ranking in 158 150 145 World Bank Implement FY 2008:- MINICOM,
business Doing Doing strategies to ƒ Establish commercial registration agency RRA
climate Business Business improve ƒ Legislate Bills on Companies, Contracts, Secured Transactions,
Report business and Business Registration and Insolvency
investment ƒ Implement RADDEX system to ease cross-border trade with
climate in Tanzania and Uganda
Rwanda ƒ Levy taxes on imports at FOB values
FY 2009 Jan- June:-
ƒ Operationalize Commercial Registration Agency
ƒ Effectively apply all modules of Asycuda and reinforce valuation
unit in customs
FY 2009/2010:-
ƒ Effectively apply all modules of Asycuda and reinforce valuation
unit in customs
1.2 Score of Baseline RIEPA reports Create a FY 2008:- MINICOM
Investor data not conducive ƒ Business Licensing reform
Perceptions of available environment ƒ Identification and approval of quick win reforms on licensing by
regulatory for both local Cabinet
issues, and foreign FY 2009 Jan- June:-
licensing investors ƒ Implementation of the "quick wins" reform
burden, ƒ Review all licenses, simplify and streamline the most cumbersome
corruption and ones to reduce time and procedures taken to issue licenses
dispute ƒ Conduct baseline survey on investor perceptions
resolution FY 2009/2010:-
ƒ Monitor and evaluate the implementation of the licensing reform

16
The complete Common Performance Assessment Framework (CPAF) is Available in the Technical Annexes
31
EDPRS Expected Performance Public Policy Actions
Strategic Indicators Baseline Targets Targets Source of Policy Key Policy Benchmarks/Outputs by Year Responsibility
Outcomes 2006 2009/2010 2010/2011 Data Action Centre

1.3 Credit to 10 12.217 13.1 BNR Implement FY 2008:- FSDP

private sector Monetary Financial ƒ Implement the National Microfinance (MF) Strategy and Law Secretariat
(as % of GDP) Survey Sector ƒ Establish MF Credit fund, and MF capacity building fund
Development ƒ MoU signed between BNR and MINAGRI for the implementation
Plan of the final phase of the Rural Investment facility (RIF 2)
FY 2009 Jan- June:-
ƒ Operationalize MF credit fund and complete feasibility study of
establishing a rural micro-insurance company
ƒ Adopt appropriate legal and regulatory framework for national
payment systems, credit bureau, and secured transactions
2009/2010:-
ƒ Establish loan guarantee programs for commercial banks to increase
lending to SMEs
1.4 Proportion 8% 9% 9.5% LMIS Enhance FY 2008:- MINEDUC
of employers TVET ƒ Publish TVET policy
who are Strategic FY 2009 Jan- June:-
satisfied with Policy & ƒ Develop and cost TVET Strategic Plan
the Plan in line
performance with market
of TVET demand
graduates
EDPRS FLAGSHIP PROGRAM 3: GOVERNANCE
EDPRS Strategic Objective: enhancing gains through good governance - Paragraph 4.2.10
2. Enhanced 2.1 Index for C+ B- Budget reports Public FY 2008:- Budget Unit
public multiyear (2007) PEFA Reports Financial ƒ Prepare an MTEF implementation guidelines
financial perspective in Management ƒ Conduct an assessment of improving Budget Classification
management fiscal Follows FY 2009 Jan- June:-
planning, International ƒ Introduce and mainstream gender budgeting
expenditure Best ƒ Align budget calendar to EAC practices
policy and Practices ƒ Debt management strategy approved by Cabinet
budgeting FY 2009/2010:-
ƒ Revitalize MTEF and integrate it into budget process
ƒ Study and introduce performance-based budgeting

17
In the Results Based Logical Framework, the forecast on expansion of credit to private during the 2009/2010 fiscal period has marginally been revised down to 12% to
mitigate any negative impact that may arise because of the ongoing global recession.

32
EDPRS Expected Performance Public Policy Actions
Strategic Indicators Baseline Targets Targets Source of Policy Key Policy Benchmarks/Outputs by Year Responsibility
Outcomes 2006 2009/2010 2010/2011 Data Action Centre

2.2 Index of D+ C+ IPPS Public FY 2008:- MIFOTRA

effectiveness (2007) implementation Financial IPPIS System Technical Requirements and Functional
of payroll reports PEFA Management
controls Reports Follows Requirements Specification carried-out
International System Gap Analysis carried-out
Best HR-Module (Subsystem) accomplished
Practices 2009 Jan- June:-
Carryout Data Cleaning from Legacy Systems and
Migrate to IPPIS Database
FY 2009/2010:-
Payroll Module (Subsystem) accomplished
ƒ Integrate HR and Payroll Subsystems
2.3 Index on C+ B- PEFA reports Public FY 2008:- Public
quality and (2007) Financial ƒ Update and refine the short and long term capacity building needs Account Unit
timeliness of Management assessment
annual Follows ƒ Complete development of PublicBooks software
financial International 2009 Jan- June:-
statements Best • Conduct training for short term skills enhancement course and
Practices ACCA part 1
• Test PublicBooks and roll it on pilot basis
• Each Budget Agency submits a Fund Accountability Statements for
the FY2007
FY 2009/2010:-
ƒ Conduct training for short term skills enhancement course and
ACCA part 1&2
ƒ Roll out PublicBooks to all budget agencies and integrate it with
IPPS
ƒ Each Budget Agency submits complete set of Financial Statements
for FY 2008 within 3 months after the end of financial year
2.4 Percentage 20% of 30% of all 35% of all Internal audit Public FY 2008:- Internal Audit
of Internal all budget budget budget reports Financial ƒ Provide training on systems audit
audit reports agencies agencies agencies Management 2009 Jan- June:-
submitted submit submit submit Follows ƒ Adopt and publish internal audit manuals and internal auditors code
internal internal internal International of ethics
audit report audit report audit report Best Practices FY 2009/2010:-
ƒ Conduct systems audits
2.5 Percentage 50% both 55% both 60% both OAG reports Public FY 2008:- OAG
of Government CG CG entities CG entities Financial ƒ Develop a staff retention strategy
expenditure entities & & districts & districts Management ƒ Support development of for qualifies staff
2009 Jan- June:-
audited by districts Follows
ƒ Install improved audit software
OAG International FY 2009/2010:-
33
EDPRS Expected Performance Public Policy Actions
Strategic Indicators Baseline Targets Targets Source of Policy Key Policy Benchmarks/Outputs by Year Responsibility
Outcomes 2006 2009/2010 2010/2011 Data Action Centre

Best ƒ Strengthen specialized audit (payroll audit)

Practices ƒ Implement staff retention strategy
2.6 Percentage Limited 50% of 60% of Treasury Public FY 2008:- Treasury
of Public submissio GBEs GBEs reports Financial ƒ Develop a strategy for government portfolio management (with
enterprise n by submit submit Management clear guidelines on borrowing)
submitting GBEs and fiscal fiscal Follows ƒ Gather annual financial statements from all GBEs
fiscal reports no reports; all reports; all International 2009 Jan- June:-
consolidat reports reports Best ƒ Analyze and compile reports on fiscal risks posed by GBEs
ed reports consolidated consolidated Practices FY 2009/2010:-
ƒ Implement and monitor the government portfolio management
strategy
2.7 Proportion 73% 78% 80% RPPA reports Public FY 2008:- RPPA
of the value of Financial ƒ Train procurement officers at all levels on new procurement law
procurement Management ƒ Publish the independent review (appeal) panel report
tendered Follows ƒ Develop the institutional and legal framework to support capacity in
competitively International procurement
or justified Best 2009 Jan- June:-
Practices ƒ Conclude partnership agreement with learning institution in Kigali
to develop curricula to provide basic training in procurement
FY 2009/2010:-
ƒ Review regulations to include provision for justification for
restricted or no competition tendering methods
ƒ Carry out procurement Audit
ƒ Provide professional training to procurement officers across
government

Public investments management: This version of the CPAF does not contain policy measures relating to the management of public investments. Important policy actions that the Government has prioritized
include adoption by Cabinet, in 2009, a new public investment policy to guide the preparation, selection and implementation of public investment projects. The full implementation of the public investment
program is expected towards FY 2010/2011. This measure is fully supported by the development partners, including the Bank as evidenced in the various minutes of the Budget Support Harmonization
Group. It is also a priority area for the Government and it specifically allowed the Bank to include this policy action as one of the measures to be supported by PRSSP-III. It is expected that subsequent
revisions of the CPAF will incorporate this activity.

34
 Appendix III
RWANDA
Poverty Reduction Strategy Support Programme (PRSSP-III)
Appraisal Report

Comparative Socio-Economic Indicators

Develo- Develo-
Year Rwanda Africa ping ped
Countrie Countrie
Basic Indicators
G N I p er cap i t a U S $
Area ( '000 Km²) 26 30 307 80 976 54 658
Total Population (millions) 2007 9,7 963,7 5 448,2 1 223,0 1200
Urban Population (% of Total) 2007 24,7 39,8 43,5 74,2 1000
800
Population Density (per Km²) 2007 369,2 31,8 65,7 23,0 600
GNI per Capita (US $) 2000 250 1 071 2 000 36 487 400
Labor Force Participation - Total (%) 2005 50,5 42,3 45,6 54,6 200
Labor Force Participation - Female (%) 2005 51,2 41,1 39,7 44,9 0

Gender -Related Dev elopment Index Value 2005 0,450 0,486 0.694 0,911
Human Dev elop. Index (Rank among 174 countries 2005 161 n.a. n.a. n.a. Rwanda Af rica
Popul. Liv ing Below $ 1 a Day (% of Population) 2001 51,2 45,0 32,0 20,0
Demographic Indicators
Population Grow th Rate - Total (%) 2007 2,7 2,3 1,4 0,3
Population Grow th Rate - Urban (%) 2007 9,9 3,5 2,6 0,5
Population < 15 y ears (%) 2007 42,9 41,0 30,2 16,7 Po p ul at i o n G r o w t h R at e ( %)

Population >= 65 y ears (%) 2007 2,2 3,5 5,6 16,4 3 ,0

Dependency Ratio (%) 2007 84,2 80,1 56,0 47,7 2 ,5
Sex Ratio (per 100 female) 2007 93,2 99,3 103,2 94,3
Female Population 15-49 y ears (% of total populatio 2007 25,6 24,2 24,5 31,4 2 ,0

Life Ex pectancy at Birth - Total (y ears) 2007 46,2 54,2 65,4 76,5 1,5
Life Ex pectancy at Birth - Female (y ears) 2007 47,8 55,3 67,2 80,2 1,0
Crude Birth Rate (per 1,000) 2007 44,5 36,1 22,4 11,1 0 ,5
Crude Death Rate (per 1,000) 2007 17,2 13,2 8,3 10,4
Infant Mortality Rate (per 1,000) 2007 112,4 85,3 57,3 7,4 0 ,0

Child Mortality Rate (per 1,000) 2007 187,8 130,2 80,8 8,9
Total Fertility Rate (per w oman) 2007 5,9 4,7 2,8 1,6 Rwanda Af rica
Maternal Mortality Rate (per 100,000) 2005 750 622,9 440 13
Women Using Contraception (%) 2005 17,5 26,6 59,0 74,0
Health & Nutrition Indicators
Phy sicians (per 100,000 people) 2005 1,8 38,2 78,0 287,0
Nurses (per 100,000 people) 2005 22,8 110,7 98,0 782,0 Li f e Exp ect ancy at B i r t h
( year s)
Births attended by Trained Health Personnel (%) 2005 38,7 43,7 56,0 99,0
Access to Safe Water (% of Population) 2004 74,0 62,3 78,0 100,0 71
Access to Health Serv ices (% of Population) 2005 37,9 61,7 80,0 100,0 61
51
Access to Sanitation (% of Population) 2004 42,0 44,2 52,0 100,0 41
Percent. of Adults (aged 15-49) Liv ing w ith HIV/AID 2005 3,1 4,5 1,3 0,3 31
21
Incidence of Tuberculosis (per 100,000) 2004 371,0 310,2 144,0 11,0 11
1
Child Immunization Against Tuberculosis (%) 2005 91,0 78,1 82,0 93,0
Child Immunization Against Measles (%) 2005 89,0 68,0 73,0 90,0
Underw eight Children (% of children under 5 y ears 2005 22,5 39,0 31,0 …
Daily Calorie Supply per Capita 2004 2 173 2 434 2 675 3 285 Rwanda Af rica
Public Ex penditure on Health (as % of GDP) 2003 1,4 5,6 1,8 6,3
Education Indicators
Gross Enrolment Ratio (%)
Primary School - Total 2004/05 119,0 96,7 91,0 102,3
Primary School - Female 2004/05 120,0 90,4 105,0 102,0 I nf ant M o r t al i t y R at e
( Per 10 0 0 )
Secondary School - Total 2004/05 14,0 43,1 88,0 99,5
Secondary School - Female 2004/05 14,0 36,5 45,8 100,8 140
Primary School Female Teaching Staff (% of Total) 2003/04 51,2 47,5 51,0 82,0 120
Adult Illiteracy Rate - Total (%) 2006 35,1 43,3 26,6 1,2 100
Adult Illiteracy Rate - Male (%) 2006 28,6 34,5 19,0 0,8 80
Adult Illiteracy Rate - Female (%) 2006 40,2 52,4 34,2 1,6 60
Percentage of GDP Spent on Education 2000 2,8 4,7 3,9 5,9 40
20
Environmental Indicators 0
Land Use (Arable Land as % of Total Land Area) 2005 35,1 6,0 9,9 11,6
Annual Rate of Deforestation (%) 2000-05 3,9 0,7 0,4 -0,2
Annual Rate of Reforestation (%) 2000-05 9,0 10,9 … … Rwanda Af rica
Per Capita CO2 Emissions (metric tons) 2005 0,1 1,0 1,9 12,3

Sources : ADB Statistics Department Databases; World Bank: World Development Indicators; last update : avril 2008
UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country Reports
Note : n.a. : Not Applicable ; … : Data Not Available; * : latest data available within 1995-2000

35
 Appendix IV
RWANDA
Poverty Reduction Strategy Support Programme (PRSSP-III)
Appraisal Report

Attainment of the MDGs and National Development Targets

MDG 2000 Target MDG Latest Value Meet

Vision 2020 and MDG Indicators
Baseline 2015 (2005 & 2006) Goals?
MDG 1 : Eradicate extreme poverty and hunger Poverty (% below national poverty line) 60.4 30.2 56.9 Unlikely
Child malnutrition (% of under-5s underweight) 24.5 14.5 22.5 Unlikely
% of the pop. below min. level of dietary energy consumption 41.3 20.7 36 Likely
MDG 2 : Achieve universal primary education Literacy level (% of 15 - 24 year olds) 57.4 100 95 Very likely
Primary school net enrolment (%) 72 100 95 Very likely
Primary school completion rate (%) 22 100 51.7 Very likely
Gender gap in primary education (%) 0 0 0 Very likely
MDG 3 : Promote gender equality Gender gap in illiteracy (%) 10 0 0.1 Very likely
Seats held by females in Parliament (% of seats) 50 48.8 Very likely
MDG 4 : Reduce child mortality Children immunized against measles (% of 11-23 month-old) Very likely
Under 5 mortality rate ( per 1,000 births) 196 50 152 Likely
Infant mortality rate ( per 1,000 births) 107 28 86 Very likely
MDG 5 : Improve maternal health Maternal mortality rate (per 100,000 births) 1,071 268 750 Very likely
Births attended by skilled health personal (% of births) 28 Unlikely
MDG 6 : Combat AIDS, malaria and other diseases HIV prevalence (%) 13.9 3.5 Inconclusive
Modern contraception (condom use) prevalence Inconclusive
Among 15-24 year-olds (%) 4 39 Inconclusive
Proportion of population aged 15-24 years with comprehensive
correct knowledge of HIV/AIDS (%) 54 Inconclusive
% of school attendance of orphans to school attendance of non-orphans 0.92 Very likely
% of population with advance HIV infection with access to ARVs Very likely
Prevalence of Malaria (%) 2.4 to 4.9 Very likely
Specific mortality associated with malaria (%) 51.1 37.7 Very likely
% of children under 5 sleeping under insecticide-treated bed nets 59.7 Very likely
Prevalence and death rates associated with tuberculosis (%) 6 Very likely
% of tuberculosis cases detected/cured under directly-observed treatment Very likely
MDG 7 : Ensure environmental sustainability Forested land as % of land area 25 Very likely
% Area protected to maintain biological diversity to surface area (%) 10 12 Unlikely
% of the population with sustainable access to improved water source 82 64 Very likely
% of the population with access to improved sanitation 8 Likely
MDG 8 :Develop a global partnership for Proportion of ODA to basic social services
Inconclusive
development (basic education, primary health care, nutrition, safe water and sanitation )
Proportion of official bilateral HIPC debt cancelled Inconclusive
Debt Service as a Percentage of Exports of Goods and Services 10.6 Very likely
Telephone Lines And Cellular Subscribers per 100 Population 2.3 Unlikely
Personal Computers in Use and Internet Users per 100 population 0.6 Unlikely
Source: Rwanda National Institute of Statistics, Millennium Development Goals, Country Report 2007.

36
 Appendix V
RWANDA
Poverty Reduction Strategy Support Programme (PRSSP-III)
Appraisal Report

Macroeconomic Framework – Summary Indicators, 2008-2011/2012

2008 S1 20091 2009/10 2010/11 2011/12

2005 2006 2007 (Est.) (Prj.) (Prj.) (Prj.) (Prj.)
Economic Growth and Inflation
Real GDP Growth 7.2% 7.3% 7.9% 8.5% 6% (**) 6%(**) 7.8% 8.0%
Nominal GDP Growth per Capita 275 320 376 460 220 529 585 640
Consumer Price Index (annual 9.0% 8.9% 9.1%
average)2 15.1% 7.7% 7.0% 5.3% 5.0%
Central Government Budget (%
GDP)
Domestic Revenue 13.5% 13.3% 13.6% 13.9% 15.4% 13.0% 13.3% 13.6%
Grants 12.7% 10.7% 11.1% 13.1% 17.3% 11.7% 11.0% 9.4%
Expenditure and Net Lending 25.6% 24.5% 26.3% 27.4% 32.6% 25.6% 30.1% 27.4%
Current Expenditure 16.1% 16.2% 16.7% 16.4% 18.2% 14.8% 14.2% 13.8%
Capital Expenditure 9.1% 7.6% 10.0% 11.3% 14.1% 12.3% 11.5% 10.4%
Overall Balance (payment order)
Including Grants 0.7% -0.4% -1.6% -0.4% 0.1% -1.6% -0.7% -0.5%
-12.0% -11.1% - -
Excluding Grants 12.7% 13.5% -17.2% -13.4% -11.8% -9.9%
Monetary Sector (annual %
change)
Broad Money - Growth 19.5% 30.4% 33.2% 14.0% 12.9% 18.0% 16.5% 16.4%
Reserves of the BNR – Growth 19.5% 11.9% 30.7% 22.3% - 18.0% 1.3% -4.6%
Private Sector Credit 12.4% 13.5% 13.9% 20.0% -18.4% 10.5% 31.8% 39.3%
Gross Investment - 20.4% 21.0% 23.4% - 20.1% 20.9% 13.4%
Gross National Savings - 4.3% 5.4% 5% - -4.6% 17.6% 8.3%
Balance of Payments (million
USD)
Exports of Goods 125 147.4 176.8 221.2 121.1 278.1 327.8 380.4
Imports of Goods -361.9 -446.4 -581.2 -824.1 -389.2 -809.6 -924.7 -984.0
Current Account Balance as % -2.4% -7.3% -4.9%
GDP4 -8.2% -2.9% -5.8% -6.6% -7.2%
Overall Balance as % GDP 5.0% 2.9% 3.2% -1.2% 5.0% 1.5% 0.1% -1.0%
Gross Official Reserves5 6.2 6.3 6.4 4.6 - 7.7 7.2 6.3
External Debt as % GDP 70.7% 16.9% 16.8% 15.4% - 14.9% - -

Source: MINECOFIN, IMF and ADB Staff Projections.

Notes: 1 Semester One 2009: January to June.
2 Excluding demobilization spending.
3 Excluding grants.
4 Including official transfers.
5 Months of imports of goods and services.

(**) projections for GDP growth in 2009 have been revised downwards to 6% due to the impact of global recession.
Original estimates were: S1 2009, 7.2% and 2009/10, 7.4%.

37
 Appendix VI
RWANDA
Poverty Reduction Strategy Support Programme (PRSSP-III)
Appraisal Report

Analytical Underpinnings

Area Analytic Work

Improving Business • Letter of Intent, Memorandum of Economic and Financial
Environment Policies, and Technical Memorandum of Understanding (GoR
for IMF, 2008)
• Country Economic Memorandum (World Bank, 2008)
• Country Strategy Paper (AfDB, 2008)
• Doing Business Surveys (World Bank, 2009)
• Investment Climate Assessment (IFC/World Bank)
• Debt Sustainability Analysis Update (World Bank, 2008)
• Economic Development and Poverty Reduction Strategy, 2008
to 2012 (GoR).
• Budget Framework Paper 2009 – 2011/12 (GoR)
• Heavily Indebted Poor Countries (HIPC) Initiative and
Multilateral Debt Relief Initiative (MDRI)—Status of
Implementation (World Bank, and IMF, 2008)
• Poverty Reduction and Growth Facility (IMF, 2008)
Deepening Financial • Financial Sector Development Plan (GoR, 2007)
Services • Financial Sector Assessment Program (IMF/World Bank)
• The FinScope Rwanda 2008 findings (Funded by DFID)
Improving Public • Public Expenditure and Financial Accountability (PEFA)
Financial Management, assessment (2007)
Transparency and • Joint Governance Assessment (2008)
Accountability • Fiduciary Risk Assessment (DFID, AfDB & Government, 2008)
• PFM Reform Action Plan.
• Public Expenditure Review (ongoing)

38
 Appendix VII
RWANDA
Poverty Reduction Strategy Support Programme (PRSSP-III)
Appraisal Report

ADB’s Portfolio in Rwanda

(As at 31 December 2008)
Board
Project/Programme Title Sector Approval Finish Date AMT (UA) Status Rated? Problematic?
1 BUGESERA Agricultural Development Project Agriculture 7/24/2006 12/31/2012 10,000,000.00 OnGo Yes No
2 Forestry Management Project (PAFOR) Agriculture 11/14/2001 12/31/2009 8,900,000.00 OnGo Yes No
Dairy Cattle Development Support Project
3 (PADEBL) Agriculture 10/31/2000 6/30/2009 13,500,000.00 OnGo Yes No
Integrated Development & Management of In-
4 land Lakes –PAIGELAC Agriculture 10/6/2004 12/31/2011 14,760,000.00 OnGo Yes No
Institutional Support for Environmental
5 Management (PAIGER) Environment 7/9/2003 6/30/2009 1,000,000.00 OnGo Yes No
Rural water Supply & sanitation Project Water and
6 (AEPA) sanitation 17/12/03 31/12/09 13,000,000.00 OnGo Yes No
Urban Water & Electricity Supply Project
7 (AEPE) Multi-Sector 7/9/2003 12/31/2009 18,770,000.00 OnGo Yes No
8 PRSS II - General Budget Support Multi-Sector 18/07/07 31/12/09 33,000,000.00 OnGo Yes No
Rehabilitation/Construction of Primary Schools
9 and KIST Social 12/2/1998 4/30/2009 20,780,000.00 OnGo Yes No
10 Support to Education Sector Strategic Plan Social 6/21/2006 12/31/2011 15,000,000.00 OnGo Yes No
11 Support to National AIDS Program Social 7/22/2003 12/31/2010 2,000,000.00 OnGo Yes No
12 Roads Infrastructure Project (PIR) Transport 10/8/2003 12/31/2010 15,000,000.00 OnGo Yes No
13 Ngororero-Mukamira Road Project Transport 20/12/2004 31/12/09 15,200,000.00 OnGo Yes No
TOTAL 180,900,000.00

Recent Approvals
Board
Project/Programme Title Sector Approval Finish Date AMT (UA) Status Rated? Problematic?
1 Support To Science And Technology Skills Social 11/11/2008 12/31/2015 6,000,000.00 APVD N/A N/A
Multi-
2 Competitiveness and enterprise dev. Project Sector 12/29/2008 12/31/2012 5,000,000.00 APVD N/A N/A
TOTAL 11,000,000.00

39
 Appendix VIII
RWANDA
Poverty Reduction Strategy Support Programme (PRSSP-III)
Appraisal Report

IMF Country Relations Note

IMF Executive Board Concludes 2008 Article IV Consultation with Rwanda

Public Information Notice (PIN) No. 09/14
February 6, 2009

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's
views and analysis of economic developments and policies. With the consent of the country (or countries)
concerned, PINs are issued after Executive Board discussions of Article IV consultations with member
countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex
post assessments of member countries with longer-term program engagements. PINs are also issued after
Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in
a particular case.

On January 12, 2008, the Executive Board of the International Monetary Fund (IMF) concluded
the Article IV consultation with Rwanda.1

Background
Over the past decade, Rwanda's economic performance has been strong, backed by sound
macroeconomic and structural policies and substantial donor assistance. During this period, real
GDP growth has been robust at 7 percent on average and inflation has been generally low. Rising
revenues and assistance from international donors created fiscal space to scale up public
spending, including on pro-poor initiatives. Rwanda qualified for debt relief under the Heavily
Indebted Poor Countries Initiative (HIPC) in 2005 and benefited from Multilateral Debt Relief
Initiative (MDRI) in 2006, which significantly reduced its external debt. Rwanda's external
position has strengthened with the aid flows, allowing an adequate reserve coverage of imports.
Rwanda is advancing toward the Millennium Development Goals (MDGs). It has made
significant progress in achieving the objectives on universal primary education, gender equality
and empowering of women, and reducing child mortality. Nonetheless, poverty remains
pervasive.

The Rwanda's macroeconomic policies have been supported by a three-year Poverty Reduction
and Growth Facility (PRGF) arrangement, which was approved in June 2006. The program is
designed to maintain macroeconomic stability while setting the stage for stronger growth and
poverty reduction.

Policy implementation under the PRGF-supported program in 2008 has been satisfactory.
Growth is expected to reach 8.5 percent, reflecting buoyant activity in the agriculture,
manufacturing, construction, and services sectors. Nevertheless, inflation accelerated to double
digits in the second half of the year, reflecting the impact of international commodity prices and
expansion of domestic demand. The fiscal stance was tighter than envisaged in the first half of
the year, largely reflecting strong revenue performance. The monetary program also remained
broadly in line with the program.

The authorities made good progress in implementing the structural reforms agenda. In particular,
in the second half of 2008 the authorities finalized a medium-term action plan for the public
financial management reform, the national payments strategy, designed to improve the payments
infrastructure and address the development of basic payment services in Rwanda, and the debt
management strategy, which sets the limits for external debt accumulation consistent with the
medium-term fiscal policy objectives.

40
Executive Board Assessment
Executive Directors commended the Rwandan authorities for implementing sound
macroeconomic policies and important structural reforms over the past years. These policies and
reforms helped achieve high economic growth, keep inflation relatively stable, and improve debt
sustainability.

Downside risks to the near-term economic outlook have increased because of the global financial
crisis and economic slowdown. Also, poverty remains widespread, and social indicators lag
behind those of many other African countries, despite high economic growth rates. Over the
medium term, Directors emphasized that the main challenge will be to maintain high and broad-
based economic growth and reduce persistent poverty, while pursuing macroeconomic stability
and debt sustainability.

Directors considered the authorities' macroeconomic policy framework and structural reform
agenda to be appropriate for tackling these challenges. They encouraged the authorities to
implement cautious fiscal and monetary policies that would ease inflation and possible balance
of payments pressures without stifling economic growth. Continued determined implementation
of structural reforms will be important to raise investment rates, expand the private sector,
deepen the financial sector, and diversify the production and export base.

Directors commended the authorities' prudent fiscal stance, which focuses on priority spending
while containing inflationary pressures and keeping debt at a sustainable level. They observed
that while Rwanda's revenue collection has improved, it is still relatively low. They encouraged
the authorities to monitor revenue developments carefully, and to further enlarge the tax base and
strengthen tax administration in order to reduce over time Rwanda's substantial aid dependence.
Directors underscored the importance of improving public financial management and, in this
regard, welcomed the efforts to improve the institutional framework for formulating and
executing the public investment program.

Executive Directors supported a scaling up of public investment in view of Rwanda's substantial

development needs. They encouraged the authorities to rely on grants and highly-concessional
loans for its financing in order to safeguard debt sustainability gains. In this respect, Directors
welcomed the authorities' development of a comprehensive debt management strategy, which
sets limits for loans and loan guarantees. They recommended that the debt strategy incorporate
the fiscal risks associated with contingent liabilities, particularly those relating to planned public-
private partnerships. Directors stressed that the financing of infrastructure projects should be
consistent with a well-prioritized medium-term expenditure framework.

Directors noted that domestic demand pressures and higher world food and fuel prices led to an
acceleration of inflation in the second half of 2008. Although recent signs of easing core inflation
are encouraging, Directors supported the authorities' tight monetary stance to contain the second-
round effects of the commodity price shocks. They recommended that steps be taken to raise
interest rates to positive levels in real terms. They encouraged efforts to improve liquidity
forecasting and management, particularly through better coordination of monetary and fiscal
policies.

Directors noted the staff assessment that the real exchange rate of the Rwandan franc is broadly
in line with economic fundamentals, although rising inflation led to real appreciation pressures
toward the end of 2008. In this context, they welcomed the authorities' commitment to increase
nominal exchange rate flexibility and subordinate the foreign currency sales to monetary policy
objectives. Directors underscored the importance of structural reforms and of the removal of
infrastructure bottlenecks to safeguard Rwanda's external competitiveness.

41
Directors commended the measures taken in recent years to strengthen the banking sector,
including the passage of legislation in October 2008 to counter money laundering and terrorism
financing. Noting that credit and operational risks remain high, Directors welcomed the central
bank's intention to improve banking regulation and supervision. They looked forward to the
timely implementation of the financial sector development plan.

Directors welcomed the authorities' commitment to promote private sector-led diversified growth
and employment generation. They supported the reforms to improve the investment climate, and
attached high priority to measures aimed at addressing land use and other structural problems
that hinder agricultural development. They encouraged further trade integration with the East
African Community. Given Rwanda's financing and capacity constraints, Directors underlined
the importance of properly calibrating the scope, timing, and pace of reforms.

Rwanda: Selected Economic and Financial Indicators, 2006-09

2006 2007 2008 2009
Proj. Proj.
(Annual percentage changes, unless otherwise indicated)
Output and prices
Real GDP growth 7.3 7.9 8.5 6.0
Real GDP (per capita) 5.4 5.7 6.2 3.8
GDP deflator 9.4 10.5 15.3 10.7
Consumer prices (end of period) 12.2 6.6 22.0 6.0
External sector
Export of goods, f.o.b. (in U.S. dollars) 16.9 20.1 25.4 6.2
Imports of goods, f.o.b. (in U.S. dollars) 26.2 30.2 43.9 5.9
Export volume 12.7 6.2 13.0 19.3
Import volume 27.0 31.0 24.0 14.6
Terms of trade (deterioration = -) 4.3 13.7 -4.4 -3.7
Money and credit
Net domestic assets1 1.3 7.3 1.3 14.1
1
Domestic credit 7.8 9.7 1.3 10.2
1
Of which: Economy 13.8 11.8 10.8 15.5
Broad money (M2) 31.5 30.8 13.6 17.0
Reserve money 11.9 30.7 22.3 18.0
(Percent of GDP)
National income accounts
National savings 4.3 5.4 5.0 5.1
Gross investment 20.4 21.0 23.4 23.5

Government finance
Total revenue (excluding grants) 13.3 13.6 14.2 14.4
Total expenditure and net lending 24.5 24.9 27.1 27.0
Total expenditure and net lending, excl. privatization 24.5 26.1 27.7 27.0
Primary fiscal balance -2.1 -3.5 -3.1 -4.5
Domestic fiscal balance -5.4 -6.1 -6.5 -6.8
Overall balance, after grants -0.4 -1.5 0.1 0.9

42
 External sector
External current account balance, including official transfers -7.4 -4.9 -7.1 -8.2
External debt (end of period) 16.9 16.8 15.4 14.9
Gross reserves (in months of imports of goods and services) 5.6 5.2 5.1 4.6
(Millions of U.S. dollars)
External debt (end of period) 477.6 574.2 652.8 726.2
Gross official reserves 439.6 552.4 599.0 581.0
Memorandum item:
Nominal GDP (billions of Rwanda francs) 1,563.8 1,866.1 2,333.1 2,737.6

Sources: Rwandese authorities; and IMF staff estimates and projections.

1
As a percent of the beginning-of-period stock of broad money.

1
Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members,
usually every year. A staff team visits the country, collects economic and financial information, and discusses
with officials the country's economic developments and policies. On return to headquarters, the staff prepares
a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion,
the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this
summary is transmitted to the country's authorities.

IMF EXTERNAL RELATIONS DEPARTMENT

Public Affairs Media Relations

Phone: 202-623-7300 Phone: 202-623-7100
Fax: 202-623-6278 Fax: 202-623-6772

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 Appendix IX
RWANDA
Poverty Reduction Strategy Support Programme (PRSSP-III)
Appraisal Report

Map of the Project Area

44