Poverty reduction strategy program in Rwanda  

Dr Odette Nyiramilimo
Minister of state in the ministry of local government and social affairs 

EXECUTIVE SUMMARY

This document is an Interim Poverty Reduction Strategy Paper that aims to do the following.

• outline the challenges and policy questions confronting us in tight against poverty
• outline the current view of the government on the overall strategy and the main actions that need to be undertaken
• provide a framework for how best to utilise existing ressources ( both domestic and donor)
• set out the analytical work and participatory process which will be undertaken over the next year.

Over the next year after extensive national consultations a national poverty reduction strategy paper will be developed. This paper will build on the work in current document to set out a comprehensive country owned strategy which will guide the governent’s policies and expenditures in all sectors. This full-fledged PRSP document will be prepared completed during the first second half of 2001.

Proposed approch to Poverty Reduction and sustainable growth

Poverty reduction affects, all aspects of public action. The strategy will therefore be comprehensive and is intended to guide all aspects of public policy. The actions are grouped under the following core areas.

1. good governance, democratisation ; national reconciliation, national political stabillity and security. Grassroots participation in development and decision making an all inclusive economic system that allows effective participation of all social and economic groups in the population and creates an economy of stakeholders.
2. Policies to increase productivity and incomes of the poor. The measures to increase incomes focus on employment and labour productivity, agricultural modernisation provision of rural credit and financial services, and support to micro and small scale entreprises.
3. Actions to improve the provision and accessibility to information and social services so as to improve the quality of life of the poor. The priorities include primary health care, primary education, water and sanitation, energy and housing, They also include assertive public action to adress the high rate of population growth.
4. Adressing the problems of vulnerable groups on a sustainable basis, replacing transfers with sustainable livelihoods and establishing safety nets.

Poverty in Rwanda : Characteristics and constraints

Our history leaves us with two sets of challenges. First the economy has structural bottlenecks inherited from the past. Secondly the genocide has left a legacy of specific problems that need to be addressed.

Poverty in Rwanda is a problem that dates back many years and was exacerbated by the 1994 events. Rwanda faces many structural challenges that date back over the last 30 years these include : high incidence and depth of poverty : low agricultural productivity : famine and cyclical droughts : low human resource development : limited employment opportunies : high population density and growth, high transport costs and environmental degradation. These microeconomic problems give rise to the following macroeconomic difficulties : structural trade deficit : heavy dependance on two export crops – coffee and tea : structural imbalance between government revenues and expenditures : negative saving : and low level of private investment.

The specific problems caused by genocide include : change in the demographic structure resulting in increased number of women headed households and minor headed household : incidence of high traumatisation : high prison population , large number of internally displaced persons who lack shelter, increased incidence of poverty due to widespread loss of capital stock and labour, further decimation of human ressources, weakened social network, and an urgent need for unity and reconciliation.

The poverty line has been set at l level which 40 % of the households in the 1985 survey fell below. The genocide caused an immediate and dramatic increase in poverty from which the country is still recovering. The proportion of households below the poverty line rose from 53 % in 1993 to an estimated 70% in 1997. The latest estimate of the proportion below the poverty line is 65% 1999. Rwanda’s social indicators have deteriorated since the war. Life expectancy of 49 years ; infant mortality rate of 131 per thousand maternal rate of 810 per 100.000.

Building an enabling environment

The state’s main role is to create a conducive environment in wich economic activity can take place effictively. The current thrust is towards a strong and competent state that provides a visionary leadership and management role. A delicate balancing act needs to be created between market forces and the strong guiding and facilitative hand for the state.

The role of the state includes : (a) providing a stable macroeconomic environment (b) good governance and national reconciliation, (c) enforcing a coherent legal and regulatory system which protects the property rights of all citizens, including the poor, and enabling entrepreneurs to operate in a business-friendly environment, (d) maintaining quality infrastructure (e) promoting human ressource development, and (f) protecting the environment and (g) intervening to correct market failures, promote equity and protect the vulnerable.

Economic Growth and transformation for poverty reduction

Macroeconomic overview

Rwanda’s economy is small in size is small : with an overal domestic demand is of about US dollars 1.8 billionn US dollars. The population in gainful employment outisde agriculture is estimated at less than 250.000 which represents i.e 7% of exports. There was considerable growth of the economy immediately after the genocide as a result of post-genocide recovery. The preceding collapse made attainment of rapid growth possible in the immediate aftermath of the 1994 events due mainly to the huge inflow of emergency and humanitarian aid.  

Since then, growth has slowed significantly to just 5.9% in 1999 and possibly even less in 2000. The current slodown is partly due to the drought that has led to a decline in agricultural production and also due to lower export prices.

The main elements of the medium term macroeconomic program are to achive annual average real GDP growth rate of 5-6 percent a year : keep inflation at bellow 5 percent a year maintain the level of gross official reserves at a level of at least 6 months of important and to increase the ratio of in revenue to GDP by half a percentage point per year.

Strategies and policies for economic development and growth

Increasing revenue and raising it efficiently

Aware of the importance of domestic resource mobilisation the governement is committed to improving revenue performance and has decided on and has partly implemented a number of actions to improve tax administration and revenue collection.

In addition to avoiding domestic borrowing, the government will continue to ensure that public expenditures are realistic in the medium term. In the special circumstances of Rwanda there are substantial huge exceptional social expenditures. These include assistance to the victims of genocide, demobilisation and reintegration, retrenchment and food for prison, tertiary education (KIST, KIE and KIH) and the governance institutions (the Unity and Reconciliation Commission) the legal and Constitutional Affairs Commission, and the Human Rights Commission. It is hoped that in the longer term some of these expenditures will taper off.

MTEF

To stabilise and prioritise domestic public expenditure in the medium term, we are adopting an approach where the policies and priorities are agreed in advance within a medium term expenditure framework (MTEF). The priorities identified by the PRSP process will be implemented through this framework.

Debt management and HIPC

Rwanda’s outstanding debt is unsustainable. At end 1999 total external public debt outstanding amounted to about US dollars 1.3 billion representing close to 65 percent of GDP. The debt service to exports ratio peaked at about 40 percent in 1999. The NPV to exports ration reached about 520 percent at end 1999. The enhanced HIPC initiative is designed to improve this situation by reducing the stock of debt owed to the multilateral institutions. Preliminary estimates suggest that annual cash flow savings from this relief would be about US dollars 35 million a year from 2001 to 2010. The HIPC debt relief will once again put the country’s external finances on a sustainable basis.The resources made avaible from the debt relief will be directed to identified priority programme areas.

Currenty the interest on the multilateral debt is being serviced by the Multilateral Debt Trust Fund. After debt relief it is intended that these resources will instead be targeted to poverty reduction. The cooperation of our dvelopment parteners will be important in ensuring that these resources are available on a flexible basis for poverty reduction.

Trade liberalisation and Regional Integration

Since 1994 Rwanda has embarked on a comprehensive liberalization of its foreign trade regime and adhered to the regional integration targets under the Cross Border Initiative (CBI). Rwanda has also made significant advances in regional integration. A World Trade Organisation (WTO) member since 1996 Rwanda is party to the CBI and a member of COMESA. It has also been invited to join the Commission for East African Cooperation (EAC) and is expected to become a member in the near future.

Beyond the liberalization of trade in goods and movements of factors of production, the development of trade related infrastructures is essential for regional cooperation. In addition the further enhancement of intraregional trade will require improvements in the institutional environment for the private sector, including through the effective implementation of the new investment code, a further liberalization of the exchange regime and the simplification of procedures for customs declaration and setting up of new business.

Encouraging Investment Competitiveness and Entrerprise development

Rwanda Investment Promtion Agency and the Private Sector Federation have been established RIPA’s mandate is to facilitate potential investors and promote interest in investment in Rwanda. The Private Sector Federation provides a forum for the private sector to identify and organise actions to increase its competitiveness. Skills formation and use of modern tecnhnology is critical for promotion of investment and competitiveness in Rwanda. It is imperative that we invest in people, infrastructure, and centres of excellence and promote better partnership between the public and private sectors.

Privatisation

Since the privatisation policy was adopted significant progress has been made in privatisating public sector enterprises, particularly from 1998 onwards. Multi-sector regulatory agency will be established in the course of 2001 to regulate the activities of utility terms. A lock of qualified manpower and the lack of resources to widen and increase ownership hamper the privatisation policies of the Government by Rwandans. The government is considering the establishment of a trust fund which will enable the proceeds of privatisation sales to be made available for venture capital for domestic entrepreneurs including potential buyers of the privatised firms.

Strengthening the Financial Sector

Since 1995 steps have been taken to deepen and liberalize the financial sector. Efforts are underway to improve the links between the financial system and the real sector. Restructuring plans have been agreed between the BNR and the commercial banks. A legal framework for micro finance institutions is being considered and the Banques Populaires is to be restructured so as to enhance its role in providing services to rural areas and in encouraging savings mobilization Commercial banks need to be encouraged to concentrate more on financing private sector activities in particular productive sectors including small scale projects. Government will also consider directing credit to particular sectors for instance agriculture which currently only receives 2% of bank credit.

Sources of growth in the Rwandan Economy

It is clear that in the short term there are two overriding challenges. The first is to increase exports as only this can ensure macroeconomic viability. Currently two crops coffee and tea dominate exports. Both these sectors need to be effectively modernised and promoted. In addition there are other potential source of export growth including high value horticultural crops. The second challenge which is very closely related is to create growth in the rural economy by boosting agricultural incomes. In the medium to longer term the challenge is how best to diversify the economy for deeper and more sustainable economic transformation and overall development.

Tea and Coffee

The tea and coffee sub-sectors can make enormous contribution to poverty in the short to medium term. Increasing productivity and quality will have considerable effects on rural income and employment.

Non- traditional exports

Cut flowers from Rwanda already attract a premium on world markets compared to those produced in the sub-region. Other non-traditional export crops that have been identified in the agricultural sector include, pears, pineapples, passion fruit , green peppers and processed bananas, sunflowers pyrethrum and quincona.

Services

Rwanda can overcome its natural geographic and ressource constraints by playing the role of regional entrepot and a regional centre for services industry has some natural advantages as a supplier of business services to the region including the widespread use of two international languages. There is one niche that can be developed relatively quickly Rwanda given a skilled bilingual population can aim at being a centre of tele data processing. This is within reach if sufficient efforts went into human resource development, science, technology, management bilingualism and an open liberal policy in the utility sector. There is also considerable potential for becoming a regional hub for financial services. The Government is encouraging the establishment of a regional IT institute in Rwanda.

Natural Gas

Government is elaborating a project to develop on a limited scale the natural gas deposits in Lake Kivu. The project can be carried out by the private sector in collaboration with government.

Tourism

The endowment of the beautiful scenery and mountain gorillas can be exploited. Marketing will be important as Rwanda’s international image is still recovering from the genocide. Tourism was in the past the largest export earner after tea and coffee.

Building a competitive skilled labour force

We recognise that Rwanda’s prosperity in the future will come from new insights high quality human capital and attitudes and actions that emrace competitiveness and innovation Rwanda needs to act quickly to create a competitive edge out of its two natural advantages of human resources and bilingualism. Rwanda can transform its population into a highly skilled bilingual force through human resource development. The development of human resources can form a basis for a service economy based on skills in science, technology and management.

Sectoral policies for growth and poverty reduction

Poverty reduction should be a central objective of all sectoral programmes. While some actions contribute directly to reducing poverty now, others play a more long term role in diversifying the economy over the medium term. This section discusses the main sectoral policies under three main headings : increasing the incomes of the poor : improving the quality of life and addressing the needs of the most disadvantaged and vulnerable groups.

Costing and prioritising actions for poverty reduction

Priority Programme Areas

The government intends to identify the key programs and to ensure that budget allocations to these key sub-sectors and activities receive priority and adequate funding for the budget. To this end a provisional list of Priority Programme Areas (PPA) to be targeted by additional resources from debt relief has been identified as follows.

• Preventive and basic curative health care
• HIV/AIDS
• Primary education
• Functional adult literacy
• Secondary and vocational education targeted to the poor
• Resettlement
• Feeder roads and tracks at community level especially maintenance
• Rural water supply
• Agricultural research and extension
• Agricultural infrastructure forestry water management in the marshes terracing
• Restocking of livestock
• Gacaca
• Community initiatives for micro finance
• Capacity-building for community institutions under decentralization

Costing the needs for poverty reduction

In the PER process this work has started. Costing have been developed for health, education and water supply. With regard to the justice sector review an attempt has been made at costing the Gacaca programme over the medium term. We will therefore be undertaking a substantial analytical exercise to refine these costs during the formulation of the PRSP itself.

Institutional framework for preparing and implementing the PRSP

An institutional framework for preparing the poverty reduction strategy with all stakeholders has been established so as to improve the monitoring and co-ordination of the program. Three structures have been created namely, Interministerial committee, Steering committee and the Technical committee. All stakeholders are represented in this framework.

The aim of these consultations is to create awareness and mobilise all the stakeholders for coherent action against the problem of poverty that affects the majority of Rwandese people. The planned consultations and dialogue will be driven by the established mechanisms in charge of the poverty reduction programme.

Follow up and Monitoring

The monitoring of poverty outcomes will be coordinated by the Poverty Observatory under the National Programme for Poverty Reduction. This unit has been recently established and is developing a set of measures of poverty which will be regularly monitored in addition to commissioning specific studies on poverty in Rwanda. This unit will work in very close cooperation with the statistics Department.

Statistics for the monitoting of poverty and social development

Rwanda currently has a poor statistical base because of due to the destruction of the the statistical infrastructure during the war. The government is trying to rebuild the statistical system. Statistics are essential to plan and monitor the poverty reduction strategies and to successfully implement a development framework. The key initiatives in this regard are the ongoing household living survey the establishment of the poverty observatory for the monotoring of poverty and social indicators and the planned population census.

Several surveys are underway or planned. The major surveys include the Household Living standard survey : population census : Monitoring tracking of delivery of social services. Demographic and Health survey.

Internationally agreed Objectives for poverty and social outcomes

Rwanda like many other developing countries intends to collaborate with the international community in ensuring the measuring of its of progress against the agreed upon international development targets. In addition to the internationally agreed tagets, the National Poverty Reduction Programme has used a participatory approach to develop a set of indicators for poverty outcomes in Rwanda reflecting the main national priorities.

Policy Matrix and Timeline for Full – fledged PRSP

A policy matrix of the key policy areas and programmes is presented in a multi-sectoral framework. The timeline for the full fledged PRSP is also outlined.