Planning for Economic Growth and Poverty Reduction

1. Planning for Economic Growth and Poverty Reduction Dr. Jean-Francois Ruhashyankiko, Senior Economic Advisor Ministry of Finance and Economic Planning

2. Highlight of presentation • Introduction: Rwanda is getting ready to face its challenges • Key question: How to promote further progress in social sectors while making up for lagging productive sectors? • Build on leadership articulated in Vision 2020; • Adopt social & productive sectors as co-priorities for the design of policies to remove the obstacles on the way to Vision 2020; • Foster closer ties with Development Partners and implement the Aid Policy with its stated preference for budget support; • Seek consensus among all stakeholders for the implementation of socio-economic policies through MTEF and yearly budgets; • Ensure broader involvement of local government and the private sector to sustain long-term investment efforts. • Conclusion: EDPRS will serve as essential guiding document for our medium-term initiatives.

3. Introduction • Rwanda is among the few sub-Saharan African countries to experience more than 5% yearly real GDP growth over the last decade (1996-2005); it was 7.6%! • However, substantial progress in poverty reduction remain insufficient and more efforts should be placed on social sectors (education, health and agriculture) • In addition, strong real growth has been ignited but must now be sustained through support to productive sectors (investments, trade, industry and services), which suffer important lags compared to other sub-Saharan African countries • There are two extreme options: EITHER real growth stalls, poverty persists and private sector remains lagging… OR real growth is sustained, poverty reduced and private sector booming.

4. Strong real economic growth… …but growth needs to be strengthened and sustained! High real growth: 7.6% Double-digit growth rates evidence strong and widespread real growth Agriculture and services are main contributors to real growth.

5. Substantial progress in social sectors… … but headline poverty is still higher than in 1990; hence, much remains to be done to achieve MDGs and Vision 2020 targets!

6. Lagging productive sectors Productive sectors hindered by access & cost of energy, transport, and communication as well as access to finance

7. Key question & proposal How to promote further progress in social sectors while making up for lagging productive sectors? • Build on leadership articulated in Vision 2020; • Adopt social & productive sectors as co-priorities for the design of policies to remove the obstacles on the way to Vision 2020; • Foster closer ties with Development Partners and implement the Aid Policy with its stated preference for budget support; • Seek consensus among all stakeholders for the implementation of socio-economic policies through MTEF and yearly budgets; • Ensure broader involvement of local government and the private sector to sustain long-term investment efforts.

8. Leadership articulated in Vision 2020 • Vision 2020 is our guide for political, social and economic progress • It serves the same purpose as MDGs, which form a subset of Vision 2020 targets “Our Vision for Rwanda is a strong and secure nation, politically stable and accountable at all levels of Government. At the heart of the nation lies a socially cohesive society creating equal opportunities for all. Supported by adequate infrastructure, its people are economically successful, employed in a modern agriculture or a knowledge-based economy, and eager to seize opportunities from regional and international integration.”

9. Six Pillars of Vision 2020 • Build a strong and secure nation anchored in good governance, rule of law, social inclusion and protection guaranteed by an efficient State; • Empower human resources through improvements in health and education, as well as skills required to strive in a competitive and entrepreneurial labor environment; • Construct and extend physical infrastructures to improve transport links, energy sufficiency, water supply, and ICT networks; • Transform agriculture into a productive, high-value and market-oriented sector, with forward linkages to other sectors; • Promote investment and trade as well as facilitate the structural transformation toward industry and services, underpinning the knowledge-based modern economy; • Deepen regional economic integration and international cooperation as essential mechanisms to ensure the prosperity and credibility of the country.

10. Eleven obstacles on the way to Vision 2020 • Population (need innovative measure to control its growth), • Poverty incidence (need pro-poor economic growth), • Entrepreneurship (need to provide substantial job creation), • Capital formation (need both public/private investments), • Structural transformation (need transition to knowledge economy), • Land use (need improvements upon subsistence agriculture), • Soil erosion and deforestation (need sustainable environment), • Export promotion (need to sustain current efforts), • Absorptive capacity (need to tackle this major constraint), • Competitiveness and doing business environment (need to promote private sector and regional and international integration), • Macroeconomic stability and fiscal discipline (need to be maintained & sustained).

11. Long-Term Investment Framework/Portfolio (LTIF/P) Longer-term: 2000-2020 Macro direction Focuses on social and economic infrastructure development Considers involvement of private sector as essential Builds-in counterfactuals (i.e., assess what “would happen if” investments not carried out) Promotes performance-based budgeting (i.e., what spending “should accomplish”  amounts are purely indicative) Economic Development and Poverty Reduction Strategy (EDPRS) Medium-term: 2007-2012 Micro foundation Ensures growth is broad-based & leads to poverty reduction and social development Provides more accurate costing to help mobilize taxpayers’ and donors’ contributions Fosters integration of recurrent and development budgets Strengthens performance-based budgeting through measurable & measured outputs and outcomes Addressing these obstacles requires Fully complementary and EDPRS will serve as essential guiding document for medium-term initiatives

12. An insight from LTIF/P: Private sector! • Involving the private sector is crucial because all investments required to achieve Vision 2020 cannot be funded solely by taxpayers and donors… • We need to mobilize private savings and provide incentives to channel them to productive investments: • Mobilizing domestic savings will require substantial progress in the financial sector development • Mobilizing foreign savings will require further promotion of Foreign Direct Investments (FDI) and Rwanda’s image abroad • Turning the current private saving-investment deficit into a surplus will require a strengthening of our investment climate, doing-business environment, infrastructure, technical/managerial capacity, good governance (including continued security, low corruption and elimination of administrative hurdles and red tape), etc. • Eventually, we expect the bulk of Rwandan investments to be profitably funded by private investors, rather than taxes and grants!

13. Involvement of private sector is crucial

14. Build consensus: Emerging issues in EDPRS • Raising agricultural productivity • Extending energy and transport infrastructure • Promoting the creation of non-farm employment • Tackling population growth through innovative solutions • Addressing land reform and settlement issue • Improving targeting in social sectors • Increasing focus on gender issues • Investing in children and youth • Maintaining good governance • Sustaining export promotion • Building capacity • … Caveat: EDPRS conclusions might add further issues to this list…

15. Build consensus: EDPRS road map • Evaluation of PRSP 1 Mar-Jul 06 • Agree high-level objectives Aug 06 • Sector mapping exercise Aug-Sep 06 • Create a logical flow from high Sep-Oct 06 • level objectives to specific interventions • in every sector • Strengthen tools for Oct-Nov 06 • Monitoring and Evaluation • Costing sector strategies Oct-Nov 06 • Institutional capacity assessment Nov-Dec 06 • Drafting the EDPRS document Jan-Mar 07 • Process for “finalisation” Mar-May 07

16. Conclusion • EDPRS will serve as essential guiding document for medium-term initiatives: 2007-2012. • For that purpose, we are confident that the “final” EDPRS document will be comprehensive enough and will: • Be inspired by Vision 2020 and contribute to make progress towards its targets, which include MDGs • Incorporate valuable insights from LTIF/P, including a strong focus on the private sector to sustain investment efforts • Provide a practical and user-friendly guide for all stakeholders, at both the national and the local government levels • Be realistic–yet ambitious–in order to galvanize all efforts of Development Partners in helping us, in Rwanda, to promote the prosperity of our people.