USAID: Rwanda FY 2002 Congressional Budget Justification

PROGRAM: Rwanda
TITLE AND NUMBER: Multilateral Debt Relief Trust Fund (MDRTF), 696-004
STATUS: To be closed out
FY 2001 PLANNED OBLIGATION AND FUNDING SOURCE: none
FY 2002 PROPOSED OBLIGATION AND FUNDING SOURCE: none
INITIAL OBLIGATION: FY 1999; ESTIMATED COMPLETION DATE: FY 2001

Summary: Recent decisions by the World Bank (IBRD) and the International Monetary Fund (IMF) on Rwanda's economic situation have confirmed that the Government of Rwanda (GOR) has largely stayed the course in following sound macroeconomic policies laid out in its 1999 Policy Framework Paper (PFP). The PFP aims at maintaining economic stability and appropriate public sector spending policies, developing market based agriculture, promoting private sector growth and strengthening public sector management capacity. The GOR has recently put in place a "Medium Term (three-year) Expenditure Framework" to rationalize budgetary spending in light of anticipated revenues. The PFP was followed last year by the development of an Interim Poverty Reduction Strategy Paper (I-PRSP) which outlines a coherent strategy to address the acute poverty of most Rwandans. As a result of Rwanda's adherence to a program of fiscal and monetary reform and of the well-received I-PRSP, in December 2000, the IMF and the IBRD decided favorably on Rwanda's request for a "decision point" in its efforts to qualify for debt relief under the Heavily Indebted Poor Countries Initiative (HIPC).

Despite these efforts, the current account deficit continued to widen in 2000. This was due to a significant 15% shortfall in anticipated revenues, to higher costs of fuel and energy and to the effects of the severe seven-month drought in parts of the country. Thus, the government remained heavily dependent on foreign assistance to see it through. In 2000, donors financed 30% of the recurrent budget and 94% of the development budget.

In light of these constraints, the donors established in 1998 a Multilateral Debt Relief Trust Fund (MDRTF) to be capitalized by the donor community and administered by the International Bank for Reconstruction and Development (IBRD). The purpose of the Fund is to assist Rwanda to manage its multilateral debt over a three-year period and to promote improved public sector capacity. It was intended that the MDRTF tide Rwanda over until it could receive long term debt relief under HIPC. HIPC approval is anticipated later this year and actual debt relief should begin shortly after approval.

Key Results: At the 1998 Stockholm Conference, the donor community conditioned the establishment of the MDRTF on the GOR meeting increased targets for social sector spending. The targets were not quantified, but the donors, including the United States, sought assurance that the GOR would increase its commitments to the costs of delivery of social services. The IMF has been monitoring the GOR's commitment and has found that public sector social spending targets have been met. Social sector spending as a percentage of total government financing increased from 13.3% in 1997 to 19.9% in 1998 and to 26.6% in 1999. Last year, social sector expenditures represented approximately 28% of the total budget and the forecast for 2001 is that almost 25% of total budgetary expenditures will go towards education and health sectors alone. The GOR has now created a "Poverty Observatory" at the Ministry of Finance and will continue to monitor social sector spending closely. The I-PRSP is unequivocal in its insistence that the highest priority for government expenditures be given to the social sectors.

With respect to the MDRTF, of the $55 million pledged by the donor community in 1999, $22 million had been received by the end of 2000. The U.S. pledged $5 million in ESF funding in 1999. The U.S. contribution was actually disbursed in October 2000.

Performance and Prospects: The GOR continues to live up to its pledge to increase social sector spending and to follow macroeconomic policies that adhere to the IMF's Poverty Reduction and Growth Facility. With the favorable decision of the IMF/World Bank on Rwanda's eligibility for HIPC, the GOR is proceeding to take the necessary steps to reach the completion point later in 2000. Rwanda stands to save roughly $27 million in debt service payments in 2001-2002 and between $28 and $38 million annually through 2010.

The U.S. contribution of $5 million represents almost 25% of the total contributions to the MDRTF last year. However, with prospects for long-term debt relief for Rwanda appearing more favorable under HIPC, USAID does not anticipate a further contribution to the Fund. This Special Objective will therefore be closed out in FY 2001.

Possible Adjustments to Plans: No adjustments are anticipated since USAID intends to close out this Special Objective.

Other Donor Programs: Other contributors to the MDRTF include the United Kingdom, Sweden and the Netherlands.

Principal Contractors, Grantees or Agencies: The IBRD is the grantee for the MDRTF. In October 2000, the U.S. $5 million contribution was disbursed directly into the special IBRD account established for the Fund.

U.S. Financing

(In thousands of dollars)

	Obligations		Expenditures		Unliquidated
Through September 30, 1999	0	DA	0	DA	0	DA
	0	CSD	0	CSD	0	CSD
	5,000	ESF	0	ESF	5,000	ESF
	0	SEED	0	SEED	0	SEED
	0	FSA	0	FSA	0	FSA
	0	DFA	0	DFA	0	DFA
Fiscal Year 2000	0	DA	0	DA
	0	CSD	0	CSD
	0	ESF	5,000	ESF
	0	SEED	0	SEED
	0	FSA	0	FSA
	0	DFA	0	DFA
Through September 30, 2000	0	DA	0	DA	0	DA
	0	CSD	0	CSD	0	CSD
	5,000	ESF	5,000	ESF	0	ESF
	0	SEED	0	SEED	0	SEED
	0	FSA	0	FSA	0	FSA
	0	DFA	0	DFA	0	DFA
Prior Year Unobligated Funds	0	DA
	0	CSD
	0	ESF
	0	SEED
	0	FSA
	0	DFA
Planned Fiscal Year 2001 NOA	0	DA
	0	CSD
	0	ESF
	0	SEED
	0	FSA
	0	DFA
Total Planned Fiscal Year 2001	0	DA
	0	CSD
	0	ESF
	0	SEED
	0	FSA
	0	DFA
			Future Obligations		Est. Total Cost
Proposed Fiscal Year 2002 NOA	0	DA	0	DA	0	DA
	0	CSD	0	CSD	0	CSD
	0	ESF	0	ESF	5,000	ESF
	0	SEED	0	SEED	0	SEED
	0	FSA	0	FSA	0	FSA
	0	DFA	0	DFA	0	DFA

RWANDA

Activity Data Sheet

U.S. Financing