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AFRICAN DEVELOPMENT FUND
PROGRAMME: Skills, Employability and Entrepreneurship Programme
(SEEP) COUNTRY : The Republic of Rwanda APPRAISAL REPORT
Date: March 2013
OSHD DEPARTMENT
March 2013
Appraisal Team
Team Leader: Mulle Chikoko, Principal Social Protection Specialist, OSHD 1 Sector Manager: Mohamed Youssouf, OSHD 1 Resident Representative: Negatu Makonnen, RWFO Sector Director: Agnes Soucat, OSHD Regional Director: Gabriel Negatu, EARC
TABLE OF CONTENTS
ACRONYMS AND ABBREVIATIONS ....................................................................................... ii
LOAN AND GRANT INFORMATION ....................................................................................... iii
PROGRAMME EXECUTIVE SUMMARY .................................................................................. v
RESULTS-BASED LOGICAL FRAMEWORK ........................................................................... vi
I. THE PROPOSAL ........................................................................................................................ 1
II. COUNTRY AND PROGRAMME CONTEXT ......................................................................... 2
2.1 Recent socioeconomic developments, perspectives, constraints and challenges .................... 2
2.2 Government’s overall development strategy and medium-term reforms priorities ................ 7
III. RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILITY ................................. 9
3.1 Link with the CSP, country readiness assessment and analytical works underpinnings ........ 9
3.2 Collaboration and coordination with other donors ................................................................ 10
3.3 Outcome of past and on-going similar operations and lessons ............................................. 10
3.4 Relationship with on-going Bank operations ........................................................................ 10
3.5 Bank’s value added and comparative advantages ................................................................. 11
3.6 Application of good practice principle on conditionaly ........................................................ 10
3.7 Application of Bank Group non-concessional borrowing policy .......................................... 12
IV. THE PROPOSED PROGRAMME ......................................................................................... 12
4.1 Programme’s goal and purpose ............................................................................................. 12
4.2 Programme’s components, operational policy objectives and expected results ................... 13
4.3 Financing needs and arrangements: ...................................................................................... 16
4.4 Programme’s beneficiaries .................................................................................................... 16
4.5 Programme’s impact on gender ............................................................................................. 16
4.6 Environment and Climate Change ........................................................................................ 16
V. IMPLEMENTATION, MONITORING AND EVALUATION .............................................. 16
5.1 Implementation arrangements ............................................................................................... 16
5.2 Monitoring and evaluation arrangements .............................................................................. 16
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 Group policies ................................................................................. 19
VII. RISK MANAGEMENT ........................................................................................................ 19
VIII. RECOMMENDATION ........................................................................................................ 20
i
List of Appendixes
Appendix 1 Letter of development policy
Appendix 2 Press Communique by IMF
Appendix 3 Operational Policy Matrix
Appendix 4 Key economic indicators, 2008-2016
List of Technical annexes (separate from the PAR)
Technical Annex I Principles on Conditionality
Technical Annex II Overview of PEFA assessment
Technical Annex III SEEP Analytical Work and Underpinnings
Technical Annex IV Institutional and Financial Management
Technical Annex V Situation of the Public Procurement System
Technical Annex VI Progress towards the achievement of the Millennium Development Goals
Technical Annex VII Targets and Achievements of EDPRS 1
Technical Annex VIII Key results of PRSSP-I to IV
Technical Annex IX Division of Labour Matrix
Technical Annex X Lessons Learnt
Technical Annex XI Rwanda – Bank Group Portfolio Status
List of Boxes
Box 1 Impact to Suspension of Aid
Box 2 Prior Actions
List of Figures
Figure 1 Budget Priorities for 2013–2014/15 Are Centred on Achieving the EDPRS Objectives
Figure 2 Significant Gains in Poverty Reduction, 2001–11 and Target 2015
Figure 3 Women are Overrepresented in Low-skilled Jobs, 2011
Figure 4 The Skill Gap Is Sizeable, Especially for TVET Qualifications, 2013–18
Figure 5 The Magnitude of the Skills Gap Varies from One Sector to Another, 2012
List of Tables
Table 1 Key Macroeconomic Indicators
Table 2 Prerequisites for Budget Support
Table 3. Financial Gap of Skills and Entrepreneurship Development, FY2012/13
Table 4 Revised Budget Projection in Billion RWF- FY2012/13
Table 5 Risk and Mitigation Measures
Currency Equivalents
As of February 2013
1 UA = 970.42 RWF
1 UA = 1.54 USD
1 USD = 629.6 RWF
Fiscal Year
GoR preferred disbursement currency: USD
July 1st – June 30
th
Weights and Measures
1metric tonne = 2204 pounds (lbs)
1 kilogramme (kg) = 2.200 lbs
1 metre (m) = 3.28 feet (ft)
1 millimetre (mm) = 0.03937 inch (")
1 kilometre (km) = 0.62 mile
1 hectare (ha) = 2.471 acres
ii
Acronyms and Abbreviations
12YBE Twelve-year basic education
ADF African Development Fund
AfDB African Development Bank Group
AU African Union
AUC African Union Commission
BDC Business Development Center
BDF Business Development Fund
BFP Budget Framework Paper
BNR Banque Nationale du Rwanda (Central Bank)
BSHG Budget Support Harmonization Group
CDF Community Development Fund
CEDP Competitiveness and Enterprise Development
Project
CFAA Country Financial Accountability Assessment
CPAF Common Performance Assessment
Framework
CPI Corruption Perception Index
CPPR Country Portfolio Performance Review
CSO Civil Society Organization
CSP Country Strategy Paper
DfID Department for International Development
DoL Division of Labour
DP Development Partner
DPCG Development Partner’s Coordination Group
DPM Development Partner’s Meeting
DRC Democratic Republic of Congo
DRM Domestic Resource Mobilization
DSA Debt Sustainability Analysis
EAC East African Community
EC European Community
EDPRS Economic Development and Poverty
Reduction Strategy
EICV Integrated Household Living Conditions
Survey
ESSP Education Sector Strategic Plan
FAPA Fund for African Private Sector Assistance
FDI Foreign Direct Investment
FRA Fiduciary Risk Assessment
FY Fiscal Year
GDP Gross Domestic Product
GoR Government of Rwanda
HCDS Human Capital Development Strategy
HIPC Heavily Indebted Poor Country
ICGLR International Conference on the Great Lakes
Region
ICT Information and Communication Technology
IFMIS Integrated Financial Management and
Information System
IMF International Monetary Fund
JBSR Joint Budget Support Review
MIFOTRA Ministry of Public Service and Labour
MINECOFIN Ministry of Finance and Economic
Planning
MINEDUC Ministry of Education
MINICOM Ministry of Trade and Industry
MTDS Medium Term Debt Strategy
NAP National Apprenticeship Program
NES National Export Strategy
NISR National Institute of Statistics Rwanda
OAG Office of the Auditor General
ODA Official Development Assistance
OPEV Operations Evaluation Department
OSGE Governance, Financial and Economic
Reforms Department
PAYE Pay As You Earn
PBO Policy Based Operations
PCR Programme Completion Report
PEFA Public Expenditure and Financial
Accountability
PER Public Expenditure Review
PFM Public Financial Management
PROBA Proximity Business Advisory
PRSL Poverty Reduction Strategy Loan
PRSP Poverty Reduction Strategy Paper
PRSSP Poverty Reduction Strategy Support
Programme
PSDS Private Sector Development Strategy
PSF Private Sector Federation
PSI Policy Support Instrument
PSO Private Sector Operation
PSI Policy Support Instrument
RDB Rwanda Development Board
ROR Republic of Rwanda
RWFO Rwanda Field Office
SBS Sector Budget Support
SEEP Skills, Employability and Entrepreneurship
Programme
SIP Strategic Investment Programme
SPSD Support for Policy and Strategy Development
STSDP Support to Science and Technology Skills
Development
SWG Sector Working Group
TVET Technical and Vocational Education and
Training
VUP Vision Umerenge Program
WGI World Governance Indicators
WSG Water and Sanitation Group
iii
LOAN AND GRANT INFORMATION
BORROWER: Republic of Rwanda (RoR)
EXECUTING AGENCY: Ministry of Finance and Economic Planning (MINECOFIN)
Financing plan for fiscal year 2012/13 (Sector Budget support)
Source Amount (UA, million) Instrument Remarks
Commitment Disbursed
ADF 17.19 - SEEP Grant SBS SEEP
ADF 8.42 - SEEP Loan SBS SEEP
ADF 8.81 8.81 LISP Loan SBS agriculture
World Bank 81.17 - Grant/Loan To be reprogrammed into SBS (social
protection UA 26 million and the
balance as support to decentralised
public service delivery)
World Bank 8.33 - Loan SBS to social protection
European
Union
41.10 41.10 Grant GBS and SBS to agriculture, Justice,
and social protection
DFID 51.28 16.69 Grant Disbursed via SBS to agriculture,
health, education and social protection.
The outstanding balance to be disbursed
through project support in such areas as
social protection, education, NGOs
providing essential services and support
to refugees from DRC
Germany 6.10 - Grant To be reprogrammed into SBS in skills
development/ TVET
Netherlands 6.82 - Grant To be reprogrammed into SBS in
Justice
Belgium 7.82 - Grant To be reprogrammed into SBS in
Health
USAID 7.96 - Grant Proposal is to disburse via World Bank
managed project on land management
and irrigation
Global
Partnership
for Education
15.39 15.39 Grant SBS education
Total 260.39 81.99
ADF key financing information
ADF Loan/Grant currency Unit of Account (UA)
Service Charge 0.75% per annum on amount disbursed
and outstanding
Commitment fee 0.50% per annum on amount disbursed
and outstanding
Duration 50 years
Grace period 10 years
iv
Timeframe - Main milestones
Programme approval April 2013
Effectiveness Grant April 2013
Disbursement Grant April 2013
Effectiveness Loan April 2013
Disbursement Loan April 2013
Completion April 2014
v
PROGRAMME EXECUTIVE SUMMARY
Programme
overview
The Skills, Employability and Entrepreneurship Programme (SEEP) is a Policy Based Operation
(PBO), designed as a single tranche Sector Budget Support ADF Loan of UA 8.42 million and
grant of UA 17.19 million, to protect critical employment creation expenditures in skills,
employability and entrepreneurship development sectors being threatened by protracted aid. The
programme will be implemented in an environment characterized by political stability,
macroeconomic stability, moderate fiduciary risk and strong government commitment to
poverty reduction. In alignment with aid harmonization, the program was developed with
government and in close consultation with key DPs including the World Bank, EC, Germany,
DFID, Netherlands, Belgium, France, Sweden Switzerland and the US. Specifically, SEEP will
address skills gaps, education relevance and promote job creation through innovative
entrepreneurship.
Programme
outcomes
The overarching goal of SEEP is to support GoR policy reform effort to promote inclusive
growth and poverty reduction. The expected outcomes are (i) reduced skills mismatch between
supply and demand in the labour market; and (ii) innovative, entrepreneurial development.
The expected results include (i) 41% share of TVET enrolment in upper secondary school by
2014; (ii) Proportion of employers who are satisfied with performance of TVET graduate will
increase from 67% (2010) to 71% (2014); (iii) Share of higher education students in science
including ICT and engineering will increase from 35% in (2012) to 40% in (2014); and (iv)
Share of self-employment in off-farm jobs will increase from 9.7% (2011) to 11.5% (2016)
Needs
assessment
Critical actions are needed to tackle limited skills and low labour productivity which prevail in
all sectors of the economy, stifling private sector growth and competitiveness. A major factor
contributing to youth underemployment is skills mismatch with an average skills deficit of 40%
and limited job growth and expansion.
The skills and entrepreneurship program has a gap of US$48.48.3 million. The Sector Budget
Support will contribute to the implementation of reforms in skills and employability; and
entrepreneurship development sectors to ensure that the notable achievements already
undertaken by GoR are not reversed. The situation could be worsened by protracted aids if no
offsetting measures are taken. The challenges ahead are sustaining and scaling up the skills and
employability to create private sector jobs under highly uncertain prospects of donor aid and the
global environment; and, in the medium term, sustaining strong private sector led growth and
poverty reduction while gradually winding down Rwanda’s high dependence on foreign aid.
Bank’s added
value
The Bank has considerable experience and expertise in PBO’s in Rwanda. The SEEP has further
gained from designing and implementing similar programs focusing on education and
employability, fiscal consolidation, protection and promotion of basic services, and social
inclusion including that for Ethiopia, Tunisia, Morocco, Malawi and Cote d’Ivoire. Through
continuous policy dialogue, in particular through RWFO, the Bank informed GoR’s reform
program and emphasised the need to deepen reforms in skills development, employability and
entrepreneurship development. During EDPRS 2 (2013-2018) implementation, the Bank will
continue the policy dialogue to help sustain the momentum of reforms on youth employment
and productivity, skills and entrepreneurship development. The operation will also have a
catalysing role in improving domestic resource mobilization and leveraging additional resources
to signal confidence in Rwanda, thereby contributing towards, inclusive growth and poverty
reduction.
Institutional
development
and
knowledge
building
SEEP will also support reforms to institute monitoring mechanisms such as tracer studies and
employer satisfaction surveys to support the knowledge building and monitoring of
development results to provide relevant information for the education sector and future Bank
interventions. Analytical knowledge building will also be promoted through the preparation of
the Programme Completion Report (PCR) and through the Bank’s participation in joint
analytical work. This will inform the Bank advisory services to Rwanda, and further lead to
better design of other PBO’s going forward. The Bank through RWFO will play a significant
role with GoR, DPs and other stakeholders by documenting the lessons learnt and disseminating
this through a variety of channels to share learning on development practice.
vi
RESULTS-BASED LOGICAL FRAMEWORK Country and Programme Name: Rwanda- Skills, Employability and Entrepreneurship Programme (SEEP).
Purpose of the programme: The purpose of the programme is to contribute to accelerated growth and poverty reduction. Specifically; the operation will support
policy reform addressing skills gap, education relevance and entrepreneurship development.
RESULTS CHAIN PERFORMANCE INDICATORS MEANS OF
VERIFICATION
RISKS/MITIGATION
MEASURES Indicator Baseline Target
IMP
AC
T
To promote Inclusive
growth and poverty
reduction.
.
GDP per capita
620 USD
(2011)
774 USD
(2014)
IMF Economic
Outlook
1. Risk: Regional political
Instability continues.
Mitigation measures:
Enhanced international and
regional cooperation and
efforts to promote peace and
regional stability with the
framework of the ICGL and
the EAC.
2. Risk: Macroeconomic
instability: reversal of the
global economic recovery,
external shocks
(international price increase
of oil and other
commodities reduced DP
financing) and protracted
aid delays.
Mitigating measures:
Implementation of IMF PSI
programme and GoR’s
commitment to sound fiscal
and monetary policies, on-
going efforts to diversify the
economy, promotion of
trade and increased DRM.
Donor commitment to
enhance aid predictability.
3. Risk: Fiduciary risk is
estimated to be moderate.
Mitigation measures –
implementation of the PFM
reform strategy, strong GoR
commitment including
policy on zero tolerance to
corruption
Risk 4: Limited
Implementation Capacity
Mitigation measures.
Implementation of the
strategic capacity building
initiative. MINICOM will
also implement specific
capacity development
initiative to favor
entrepreneurship
development.
Under-employment
rate
67.8% (2011) 60% (2016) NISR reports
EICV reports
% of population
living below poverty
line.
44.9% (2011) 30% (2015) and 23.8%
(2020)
% of female/male
headed household
extremely poor
Female (26%)
Male (23%)
( 2011)
Female (18%)
Male (16%)
(2016)
.OU
TC
OM
ES
Outcome: 1
Reduced mismatch
between supply and
demand in the labor
market.
Share of TVET
enrolment as % of
upper secondary
stream.
Total (38%)
Female
(38.3%)
Male (37.7%)
(2011)
Total (41%)
Female (42%)
Male (41%)
(2014)
MINEDUC reports
Proportion of
employers who are
satisfied with the
performance of
TVET graduates.
67% (2010) 71% (2014) MINEDUC reports
Share of higher
education students in
science including
ICT and engineering
Total (35%)
Female
(27.7%)
Male (41%)
(2012)
Total (40%)
Female (32%)
Male (47%)
(2014)
MINEDUC reports
Outcome: 2 Innovative
entrepreneurial
development promoted
with focus on youth and
women.
Share of self-
employment in off-
farm employment
9.7% (2011) 11.5% (2016) NISR reports
Share of off-farm
jobs in total
employment
28.4% (2012) 37.0% (2016)
OU
TP
UT
S
Component 1:Skills and Employability
1.1 Increased private
sector participation in
education reform.
No. of TVET
curricula designed
with private sector
5
(2012)
9(2013
Curriculum
utilised(2014)
MINEDUC/WDA
reports
No. of Sector skills
councils established
1 (2012) Establishment of 3
Sector skills councils
(2013)-Prior action
12 (2014)
MINEDUC/RDB
reports
1.2 Incentives
mechanisms set up to
increase acquisition of
skills in demand
New policy on
scholarship for
higher and technical
education developed
Draft policy on
scholarship for
higher and
technical
education
developed
New policy on
scholarship for
higher and technical
education developed -
Prior action
MINEDUC reports
TVET qualification
framework is
established
Draft TVET
qualification
framework is in
place
TVET qualification
framework developed
(2013)-Prior action
MINEDUC/WDA
reports
No. of TVET
graduates (% female)
15,598 (2011)
(50.4 %
female-2011)
21,307 (2014)
( 51 % female)
MINEDUC reports
1.3 Monitoring
mechanisms established
to assess the relevance
of training for the
Number of public
higher learning
institutions
conducting tracer
3 (2012) 6 (2014) MINEDUC reports
vii
labour market studies
Generalise tracer
studies to all TVET
institutions
Tracer studies
piloted in 60%
institutions
(2012)
Tracer studies
conducted in at least
75% of all TVET
institution (2014)
MINEDUC reports
Component 2: Entrepreneurship Development
2.1 Innovative funding
and information
mechanisms established
to support
entrepreneurship
Quasi-equity scheme
of the Business
Development Fund
established and
implemented for
start-ups through
BDF
Not in place Quasi-equity scheme of
the Business
Development Fund
established(2013)
Quasi-equity guarantee
scheme capitalized and
volume of loan/no. of
recipients(male/female)
(2014)
BDF reports
Establish Proximity
Business Advisory
Scheme (PROBAS)
PROBAS
rolled out to
cover 128
sectors (2012)
Roll out PROBAS to
additional 288 sectors
(2014)
MINICOM reports
Established business
incubators in
existing business
development centers
0
(2012)
12 incubators
established in 30
Development Centers
(2013)
RDB reports
Provide technical
and financial support
to youth hawkers and
women vendors for
income generating
activities
400 (2012) 29,000 (2014) MIFOTRA reports
2.2 Improved
coordination of
entrepreneurship
development
programmes
National
apprenticeship
programme
established
Non existing National
apprenticeship
programme established
( 2013)
MINICOM reports
Number of graduates
from apprenticeship
programme
1,200 (2011) 2000
(2014)
MINICOM reports
Productivity and
Youth employment
strategy developed.
Not in place Productivity and
Youth employment
strategy. developed
(2013) Prior action
MINICOM reports
KE
Y
AC
TIV
ITIE
S Components:
Component 1: Skills and Employability
Component 2: Entrepreneurship Development
Inputs- Funding in million UA
ADF: 25.61;
1
REPORT AND RECOMMENDATIONS TO THE BOARD OF DIRECTORS
ON A PROPOSED LOAN AND GRANT FOR THE RWANDA
SKILLS, EMPLOYABILITY AND ENTREPRENEURSHIP PROGRAMME (SEEP)
I. THE PROPOSAL
1.1 Management submits the following proposal and recommendation for a proposed loan of
UA 8.42 million and grant of UA 17.19 million to the Republic of Rwanda to finance the Skills,
Employability and Entrepreneurship Programme (SEEP). This is the Bank’s third1 Sector Budget
Support (SBS) programme. The SEEP was jointly designed with the Government of Rwanda (GoR) in
close consultations with major Development Partners (DPs), including the World Bank, the European
Commission, Belgium, France, Germany, the Netherlands, Sweden, Switzerland, the United
Kingdom, and the United States. All partners underscored that the Bank’s intervention through an
SBS was “needed and timely”. Other stakeholders, including Civil Society Organizations (CSOs) and
the private sector, were also engaged.
1.2 The SEEP is anchored in the Bank’s CSP 2012–16 for Rwanda. The CSP aims at promoting
economic competitiveness for inclusive growth and poverty reduction through two strategic and
complementary pillars: (i) Infrastructure Development and (ii) Enterprise and Institutional
Development on principles of aid effectiveness. The SEEP aligns with the second pillar of the CSP,
which emphasizes skills and innovative entrepreneurial development. It is also aligned with the
upcoming Human Capital Development Strategy, which prioritises skills for competitiveness and
employment opportunities, innovation and inclusive financial systems. Furthermore, it is in
conformity with the Bank’s draft Long Term Strategy, which gives priority to inclusive growth and
youth employment.
1.3 The programme aligns with Rwanda’s “Vision 2020” and is founded on the newly
formulated second Economic Development and Poverty Reduction Strategy (EDPRS 2, 2013–
18), which seeks to consolidate and scale up gains achieved under EDPRS 1. GoR aims to achieve
a combination of rapid economic growth, sufficient to drive the country towards attaining middle-
income status by 2020, and the reduction of poverty to 30% by 2015. The government has prioritised
four thematic areas, including (i) economic transformation for accelerated economic growth; (ii) rural
development to ensure sustainable poverty reduction; (iii) productivity and youth employment with an
emphasis on appropriate skills and productive employment; and (iv) accountable governance.
1.4 SEEP will support the implementation of prioritised reforms in line with the objectives
outlined in EDPRS 2 by protecting critical expenditures in skills, employability and
entrepreneurship development sectors that are currently threatened by budget suspension.
Specifically, SEEP will support structural policy reforms and expenditures that address critical skills
gaps, education relevant to the labor market and the creation of an environment where innovative
entrepreneurship can flourish. Expected outcomes include (i) a reduced skills mismatch between
supply and demand in the labor market; and (ii) innovative entrepreneurial development. Prudent
policies have played a key role in Rwanda’s continued success. The challenges ahead are sustaining
this good performance under highly uncertain prospects for donor aid and the global economic
environment. In the medium term, sustaining strong growth and poverty reduction, while gradually
reducing Rwanda’s high dependence on foreign aid, will be critical. The programme was appraised in
February 2013 in response to GoR’s request to protect critical expenditures in the skills, employability
and entrepreneurship development sectors in Fiscal Year (FY) 2012/13 following delays in aid flows.
1 The first two were: Support to the Education Sector Strategic Plan 2006–2010; Livelihood Infrastructure Budget Support.
2
II. COUNTRY AND PROGRAMME CONTEXT
2.1 Recent socioeconomic developments, perspectives, constraints and challenges
Economic context
2.1.1 Rwanda has been an economic success story, and the country has maintained a strong
growth path. GDP growth averaged above 8% per year in the last decade; inflation has been subdued
since 2009; and foreign reserves have been kept at adequate levels. GDP growth during the first three
quarters of 2012 was in line with the initial projections of 7.7% for 2012, but the medium- term
growth prospects are contingent on the resumption of budget support disbursements. Growth in 2012
was driven by services and industry, which grew at 13.7% and 5.9% respectively. The agriculture
sector’s growth was moderate at 3% during the first three quarters of 2012 because of less favourable
weather conditions (table 1).
2.1.2 Suspension of foreign assistance will undermine Rwanda’s economic prospects. Assuming
that aid amounting to 12% of the FY 2012/13 budget is not disbursed in 2013, GDP growth is
projected to decrease by 2.7 percentage points from the 7% trend growth (see box 1).
2.1.3 Suspension of budget support would lead to a decrease in recurrent spending, thus
reducing access to basic services such as health and education, with a consequent reversal of
progress towards the MDGs. A reduction in capital spending would delay the implementation of
productivity enhancement investments, particularly in infrastructure, thus stalling efforts to improve
economic competiveness. Hard-won gains in macroeconomic stability might be reversed. However,
GoR remains optimistic and has projected GDP growth to decrease to 7.1%, provided AfDB and the
World Bank fulfill their programmed disbursement for 2012/13.
2.1.4 Macroeconomic management is anchored on the three-year IMF Policy Support
Instrument (PSI)–supported programme, approved in June 2010 to support the implementation
of the EDPRS while ensuring macroeconomic stability. The fifth review under the PSI was
successfully completed in November 2012 and confirmed that implementation of the programme is on
track and the macroeconomic framework is stable. Macroeconomic management has also benefitted
from the effectiveness of the monetary and fiscal coordination mechanism comprising the Central
Bank, MINECOFIN and other ministries.
Box 1: Impact of Suspension of Aid by Major Donors Would Derail Hard-won Socioeconomic Gains
“The suspension of budget support by major donors would have a deep and negative impact on Rwanda’s growth prospects. In a scenario where no offsetting measures are taken by the government, annual GDP growth would fall to 3.6% from the expected level of 7.5% without any cut in budget support. Imports would fall by 6.8%, exports by 1.8%; inflation would rise by 1%; the exchange rate would depreciate by 2%, and government revenue would decline by 3.2%.
“A sharp fall in per capita incomes would leave 1 million additional people in extreme poverty during 2012–15 (whereas if the FY 11/12 aid trend were sustained, by 2015 the country would reduce the proportion of extreme poor to 36%, that is, 500,000 additional people would be lifted out of poverty). Social sectors such as health and education would suffer significantly through the negative impact on recurrent expenditure and reduced investment in infrastructure and services. Progress on universal education and infant mortality would be reversed annually by 3% and 1.87%, respectively.
“Aid has been responsible for generating directly and indirectly about 25,000 new jobs every year. This would decline by about 50% due to the suspension of budget support.
“Food security would be threatened. For instance, fertilizer use would be undermined as aid cuts would curb overall import levels by about 6.8% annually. In the best of situations, growth in agricultural output could fall back to its pre-2007 level, in which fertilizer application was at its early stage, shaving off about 2 percentage points from its current trend. The well-known social protection programme (Vision Umerenge Program, VUP), which has been instrumental in rapidly reducing poverty in rural areas, would be the most affected.”
Source: Draft Report, Suspension of aid to Rwanda: Assessing the impact on the economy and progress towards achieving MDGs, 2012, AfDB.
3
2.1.5 Inflation decreased to 3.9% at end-2012, below the Central Bank’s 7.5% target. The
combined effects of a tight monetary policy, fuel tax reductions, and increased food production,
particularly during the second half of the year, contributed to a reduction in inflation. Average
headline inflation is projected at 5.9% and 5.3% in 2013 and 2014, depending on whether aid
disbursements resume in 2013. The broad money supply is projected to grow by 17% in 2012/13,
down from 26.8% in 2011, in line with the central bank’s tight monetary policy stance.
Table 1. Rwanda: Key Macroeconomic Indicators (% of GDP, unless otherwise indicated) 2010 2011 2012 Est. 2013 Proj. 2014 Proj.
Real GDP growth (%) 7.2 8.6 7.7 7.1 7.2
Consumer prices (period average), % annual average rate
(%)
2.3 5.7 6.3 6.0 6.0
Current account, incl. official transfers (% of GDP) –5.9 –7.3 –10.0 –10.2 –9.0
External debt (end period), % of GDP) 14.6 18.0 18.7 19.1 19.0 Gross international reserves (months of imports) 4.5 5.1 4.8 4.6 4.6 Fiscal balance, including grants (fiscal year)* –0.1 –3.4 –1.9 –2.6 –2.9
Fiscal balance, excluding grants (fiscal year) –13.3 –14.2 –13.2 –14.0 Note: * On fiscal year basis 2010 represents year 2009/10. Source: IMF 2012 report; National Bank of Rwanda Monetary Policy and Financial Stability Statement.
2.1.6 The government continued to implement a fiscal consolidation strategy in 2012/13 and is
expected to pursue this strategy in the medium term. The fiscal consolidation plan is aimed at
reducing and prioritising public spending, reducing domestic financing and improving public revenue
collection. The fiscal deficit, including grants, narrowed from 3.4% of GDP in 2010/11 to 1.9% in
2011/12, but is expected to increase slightly in the medium term due to the implementation of the Pay
and Retention Policy, which aims to improve public sector remuneration and the government’s
strategic investments.
2.1.7 Increasing domestic revenue mobilization remains a key pillar in the government’s fiscal
consolidation strategy. Policy measures2 were introduced in FY 2012/13 to reverse the decline in tax
revenues observed since 2010 and compensate for the fuel tax reduction adopted in FY 2011/12.3 Tax
revenue collections during July–December 2012 were 1.3% less than the target for the same period,
but 18% higher compared to tax receipts during the same period in 2011. Consequently, the tax-to-
GDP ratio is projected to decrease marginally from 13.5% in 2011/12 to 13.4% in 2012/13, reflecting
the impact of delayed budget support disbursements on economic activity, particularly during the first
half of 2013.
2.1.8 The budget priorities for 2012/13 to 2014/15 are centred on achieving the EDPRS
objectives and supporting a stable macroeconomic framework. Fiscal policy in the medium term
is aimed at sustaining funding for the EDPRS priority areas of economic infrastructure, productive
capacities, human development and social sectors (figure 1). The share of the budget for these sectors
is thus projected to exceed 70% of total outlays between 2012/13 and 2014/15 in line with the EDPRS
targets. GoR aims to minimise the use of net domestic financing in the medium term in line with its
objective to support increased private sector credit. However, realising this objective is contingent on
resuming budget support disbursements to minimise recourse to domestic borrowing.
2 These measures, which are expected to yield USD 45 million in additional public revenues in FY 2012/13, include an increase in the tax rate on
imported construction materials from 5% to 10% and the introduction of a gaming tax. In addition, PAYE collections are expected to yield more revenues, following the increase in public sector wages introduced to improve competitiveness and staff retention in the public sector. 3 The fuel tax reduction, which resulted in a 10% reduction in the fuel price and a revenue loss of 0.2% of GDP, was aimed at harmonising fuel taxes in
Rwanda with East African Community levels and minimising the impact of transport costs on inflation in 2011/12.
4
22 23 24 23 20
18 17 18 2017
30 33 31 2934
31 27 26 28 29
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Governance and
Sovereignty
Human Development
and Social Sectors
Productive
Capacities
Infrastructure
Source: MINECOFIN
Figure 1: Budget Priorities for 2012/13-2014/15 are centred on
achieving the EDPRS objectives (% of EDPRS Budget Allocation)
2.1.9 The external current account deficit continued
to widen in 2012. Including official transfers, the
current account deficit increased from 5.9% and 7.3%
of GDP in 2009/10 and 2010/11 respectively to 10.2%
in 2011/12, in spite of the 24.8% increase in export
earnings in 2011/12 compared to 2010/11. The
increase in export earnings in 2011/12 was due to the
diversification of export markets and favourable
international prices for tea and minerals, particularly
Coltan. However, rising imports4 overshadowed the
good export performance in 2011/12. The trade deficit
has widened to USD 1.3 billion, compared to USD 1
billion in 2011/12.
2.1.10 High trade deficits will remain a significant challenge over the medium term, as the
growing but still narrow export base fails to catch up with the sustained high demand for
intermediate, capital and energy products. Tourism has become the single largest foreign exchange
earner for the country, with receipts increasing to USD 281.8 million in 2012, or USD 30 million
more than in the previous year. A slump in private and official capital inflows from USD 511.2
million in 2011 to USD 480 million in 2012 further contributed to an overall balance of payments
deficit of 0.1% of GDP in 2012 compared to a surplus of 3.7% in 2011. The combined effect of the
reduced inflows, primarily due to the aid suspension and increased sales of foreign currency by the
central bank in response to high import demand, contributed to a reduction in gross international
reserves by 25% to USD 843.45 million at end-2012 compared to end-2011. This also translated into a
reduction in the import cover of international reserves from 5.1 months of goods and services imports
in 2011 to 4.8 months in 2012. Contingent on the resumption of budget support disbursements,
international reserves are projected to continue covering 4.5 to 5 months of imports in 2013 and 2014.
2.1.11 The 2012 Debt Sustainability Analysis (DSA)5 indicates that Rwanda remains at
moderate risk of debt distress. Public debt levels declined from 85% of GDP in 2000–04 to 14.8%
in 2010 as a result of substantial HIPC/MDRI debt relief, but increased to 18.4% of GDP at end-
2011.6 While debt levels are expected to increase over the medium term as Rwanda implements key
strategic investments, key debt indicators remain sustainable and indicate some headroom for
additional non-concessional borrowing. But to maintain debt sustainability over the medium term, a
judicious prioritization and sequencing of the implementation of large investment projects,
strengthening debt management capacity and expanding the export base, remain key priorities. A
Medium Term Debt Strategy (MTDS) has been prepared by GoR. The MTDS will provide a
framework for debt prioritization and establish, among other things, a sustainable debt service profile
consistent with GoR’s medium-term repayment capacity.
2.1.12 The economic outlook is contingent on four key developments: (i) the delayed disbursement
of budget support will constrain government spending and increase the inflationary and balance-of-
payment pressures; (ii) the weak global demand could adversely affect exports, FDI and tourism; (iii)
the government’s fiscal consolidation strategy is projected to contribute to a reduction in aggregate
demand; and (iv) a tighter monetary policy stance is expected to curtail the expansion of private sector
credit. Falling aggregate demand and private sector credit will contribute to a reduction in private
consumption, which is also the biggest contributor to GDP growth. These developments are also
expected to delay the implementation of the government’s Strategic Investment Programme.7
4 Primarily of food, construction materials, industrial products and fuel. 5 Source: Joint World Bank/IMF Debt Sustainability Analysis (May 2012). 6 The increase in public debt was due to the acquisition of loans for Rwanda Air and Kigali Conversion Center. 7 Particularly the Kigali Convention Center and the New Bugesera International Airport.
5
58.9% 56.7%
44.9%
30.2%
40.0%35.8%
24.1%
17.0%
10%
20%
30%
40%
50%
60%
70%
2000/01 2005/06 2010/11 Target 2015
Poverty rate (%)
Extreme poverty (%)
Figure 2: Significant Gains in Poverty Reduction,
2001-2011 and Target 2015
Source: NISR (2013a)
72.661.3
81.9
10.6
13.8
8.114.0
21.2
7.92.9 3.7 2.2
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Total Male Female
More skilled jobs
Skilled jobs
Unskilled jobs
Agriculture
Source: NISR (2013b)
Figure 3: Women are Over-Represented in Low-
skilled Jobs, %, 2011
Social context
2.1.13 Rwanda has made significant gains in reducing poverty, with income poverty decreasing
from 57% (2005/06) to 44.9% (2010/11). Poverty stands at 48.7% in rural areas compared with
22.1% in urban areas. The remarkable reduction in poverty
(figure 2) has been driven by a combination of improved
agriculture incomes, off-farm job creation, reduction in
household sizes and public and private transfers. More than
70% of employment is in the agriculture sector, and 62% of
waged farmworkers are in poverty compared to 22% of
waged off-farm workers. Rwanda is on track to meet 5
MDGs (1, 2, 4, 6 and 8) and likely to meet the other 3
MDGs (3, 5 and 7) by 2015 (Technical Annex VI).
Inequality has improved slightly, with the Gini coefficient
falling from 0.52 to 0.49 between 2005/06 and 2010/11.
2.1.14 Despite the significant progress, challenges
remain, particularly in maternal health, nutrition, quality of education and access to clean
water. The maternal mortality ratio remains high at 487 deaths per 100,000 live births. About 26% of
the population do not have access to improved drinking water sources. The quality of education
remains a concern. According to the 2011 Human Development Index, Rwanda ranks 166th out of
187 countries. The government is committed to accelerating poverty reduction in rural areas, with
particular focus on land, skills, infrastructure and connectivity.
2.1.15 GoR has demonstrated a strong commitment to economic empowerment of girls and
women. The National Constitution of 2003, Vision 2020 and EDPRS 1 and 2 indicate a strong
commitment by the government to promoting gender equality and women’s economic empowerment.
Rwandan society is characterised by a patriarchal social structure that underlies the unequal social
power and economic relations between men and women, boys and girls. Women constitute about 52%
of the population. Rwanda has been lauded for the high number of women political representatives in
Parliament, from 17% of parliamentarians in 1994 to 56% in 2008. Moreover, Rwanda has been
implementing gender-responsive budgeting since 2008.
2.1.16 Rwanda has progressive laws and policies that
promote economic empowerment for girls and
women. These include a Girls’ Education Policy to
ensure access, retention and performance of girls and
women at all levels. Girls’ education in science and
technology is emphasized. Rwanda has also enacted
progressive laws on women and the economy such as (i)
Law N°22/99 of 12/11/1999 related to matrimonial
regimes, liberalities and successions, giving to women
the same rights of succession as men; and (ii) Land
Organic Law N°08/2005, granting equal access to land
for men and women.
2.1.17 Women’s participation in economic activities at the national level is 56.4%, while men’s is
43.6%. However, as shown in figure 3, the majority of women are employed as unskilled labourers,
traders or artisans. Women compose the majority of the labour force in agriculture (86% as compared
to 61.5% for men) and the informal sector.
2.1.18 Rwanda has made notable progress in skills development and job creation for youth. The
overall employment-to-population ratio has remained high at 84%, in spite of the increasing number
of new entrants into the labor market. In 2011 an average of 139,000 new jobs had been created
annually over the past decade, which contributed to maintaining the unemployment rate at under 2%.
But critical gaps and mismatches in particular skills, as well as low labour productivity, are persistent
6
challenges. In 2012 a skills gap analysis by MIFOTRA revealed wide gaps in key sectors (figures 4
and 5). In 2011 about 28.5% of modern firms identified an inadequate skilled workforce as a major
constraint, compared to 14.7% in the East Africa Community (EAC). Almost 24.2% of higher
education graduates are either unemployed or underemployed, and 14.7% of upper secondary
graduates prefer to be unemployed when they fail to secure paid jobs. Labour productivity remains
low, with 67.8% of the workforce being underemployed. In 2011 66% of the population was under the
age of 25 years and 38.6% was aged 14–35.8 This underscores the role of appropriate skills
development and job creation in addressing unemployment and low productivity.
2.1.19 The Vision 2020 aims for half of the Rwandese workforce to be working off-farm by 2020,
up from 28.4% in 2011. The government is committed to developing relevant skills, particularly for
youth and women, to ensure that existing and new entrants will increase labour productivity and foster
economic growth. GoR is also undertaking education reforms to increase the alignment of training to
the labour market’s needs.
Governance and political developments
2.1.20 Rwanda continues to make significant progress in governance, anticorruption and the
business environment. The World Governance Indicators (WGI) has consistently showed an overall
positive trend, with significant progress in areas such as government effectiveness, rule of law,
regulatory quality and anticorruption. This is corroborated by the positive trend in the Mo-Ibrahim
index. Progress in the area of anticorruption is also reflected in the positive trend of the Corruption
Perception Index (CPI). Rwanda was ranked 52nd in 2012 (score 5.2), up from a rank of 66th in the
2010 CPI (score 4.0). The government has a policy of zero tolerance for corruption. Rwanda has also
made considerable progress in improving its business environment and improved its Doing Business
Ranking from 58th in 2011 to 45th in 2012. The country improved its competitiveness, moving from
rank 80/144 (score 4) in 2011 to rank 63/144 (score 4.2) according to the 2012 Competitiveness Index
of the World Economic Forum. Institutional capacity remains a challenge, but necessary actions to
address it are being implemented, which is leading to a continual improvement of the fiduciary
framework.
2.1.21 The instability in the eastern Democratic Republic of Congo (DRC) that erupted in April
2012 has several implications for Rwanda and the Great Lakes Region. Since then several
measures have been explored both within the framework of the African Union Commission (AUC)
and the International Conference of the Great Lakes Region. With the signing of the DRC Peace
8 The definition of youths in Rwanda is all those aged 14–35.
PhD; 1,2%
Engineering
& Bachelors;
1,5%Masters;
4,0%ICT
(Professional
certificate);
7,1%
Professional
Short
Courses;
16,9%TVET
(Technician
& artisans);
69,3%
Source: MIFOTRA, 2013
Figure 4: The Skill Gap is Sizeable, especialy for TVET
qualifications, 2013-2018
24%
35%39% 41%
59%65%
79%90%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Figure 5: The Magnitude of the Skills Gap varies from
one Sector to another, % , 2012
Source: MIFOTRA, 2013
7
agreement on February 24, 2013, Rwanda, DRC and ten other countries9 are expected to lay the
foundations of a lasting solution.
Prospects, constraints and challenges
2.1.22 Medium-term prospects: The medium-term outlook looks favourable, reflecting a
gradual recovery after a slowdown in 2009. Real GDP growth, warranted by continued
macroeconomic stability, is projected to remain strong, averaging not less than 7.3% in 2012/13–
2015/16.10
Growth will continue to be driven by services, agriculture and investments in critical
infrastructure needed to bolster exports of goods and services and further enhance competitiveness. It
is estimated that the fiscal deficit (excluding grants) will narrow to 12.9% in 2012/13 and 8.2% by
2014/16, fostered by continued fiscal consolidation through accelerated domestic resource
mobilization and expenditure prioritization. External debt to GDP is projected to drop from an
estimated 24% in 2012/13 to 19.5% by 2015/16. Rwanda will need to keep the momentum for strong
policies that preserve fiscal sustainability, enhance growth through structural reforms and accelerate
inclusive growth.
2.1.23 Challenges and constraints: A perpetual slack in the global economy and tightened aid
envelopes pose downside risks to Rwanda’s medium-term prospects. Vulnerabilities stemming
from the global economic slowdown, low levels of fiscal revenues, a narrow export base and volatile
inflation are apparent. Additionally, Rwanda remains heavily dependent on foreign aid, which makes
up about 45% (2010) of expenditure in the government budget. Total budget support grants are
expected to decline from 11.4% of GDP in 2012/13 to 7.2% by 2015/16. The situation could be
worsened by protracted aid if no offsetting measures are taken. Project loans and grants are inadequate
to fully offset the reduction in budget support. Moreover, the tax/GDP ratio of 13% is low but
growing and is projected to increase by 0.3 percentage points of GDP annually over the medium term.
This could derail progress towards achieving the MDGs and efforts to accelerate economic growth.
2.1.24 A fundamental challenge for Rwanda is to reinforce its development efforts with critical
actions aimed at tackling absolute and extreme poverty as well as inequalities, which remain
particularly high in rural areas. Concerted efforts are necessary to reduce vulnerability. Local
economic development to increase opportunities for the majority of Rwandans, including in the rural
areas, needs to be scaled up.
2.1.25 A low level of skills and low labour productivity prevail in all sectors of the economy,
stifling private sector growth and competitiveness. A major factor contributing to youth
underemployment is skills mismatch and limited job growth and expansion (paragraph 2.1.18). Policy
frameworks for skills development, entrepreneurship and job creation for both urban and rural areas
are already in place but are fragmented. GoR is strengthening coordination mechanisms to translate
these policies into tangible impacts.
2.2 Government’s overall development strategy and medium-term reforms priorities
2.2.1 GoR maintains a strong commitment to its long-term development agenda, the Vision
2020. Vision 2020 presents the basic framework and key priorities11
for Rwanda’s development and
ambitiously strives to overcome poverty and foster unity and reconciliation. The goal of Vision 2020
is to transform Rwanda into a middle-income country (US$ 1,240 per capita) by 2020, while ensuring
unity and the equitable distribution of development. Vision 2020 is being materialised by the
implementation of medium-term strategic plans. The first Poverty Reduction Strategy Paper (PRSP)
(2002–05) contributed to major achievements in restoring peace and the provision of key basic
services such as health, education and access to safe water and sanitation. The 2008–2012/13 EDPRS
9 Angola, Burundi, the Central African Republic, the Democratic Republic of Congo, Mozambique, the Republic of Congo, South Africa, Tanzania, Uganda and Zambia. 10 The IMFArticle IV, November 20, 2012. 11 The vision has six pillars: (i) good governance and a capable state; (ii) human resource development and a knowledge-based economy; (iii) a private sector–led economy; (iv) infrastructure development; (v) productive and market-oriented agriculture; and (vi) regional and international economic
integration. It also emphasises the need for progress on four cross-cutting issues: (i) gender equality; (ii) natural resources; (iii) the environment; and (iv)
Science, Technology, and Information and Communication Technology (ICT).
8
was designed to consolidate achievements in the rehabilitation and reconstruction of the economy by
prioritising poverty reduction and inclusive growth.
2.2.2 EDPRS 1 marked a distinct change in the approach to development, underpinned by
lessons learned under the PRSP. The strategic focus of EDPRS 1 was (i) to accelerate growth and
diversification by giving a bigger role to the private sector; and (ii) to further decentralise
governmental functions accompanied by strengthened accountability mechanisms. Its priorities were
reflected in three flagship programmes.12
Achievements under EDPRS 1 showed remarkable
socioeconomic progress, with strong economic growth and significant poverty reduction (Technical
Annex VII). GoR has developed the Second Economic Development and Poverty Reduction Strategy
(EDPRS 2), which seeks to consolidate and scale up gains achieved under EDPRS 1.
2.2.3 Medium-term priority reforms: EDPRS 2 (2013–18) aspires to achieve rapid economic
growth sufficient to drive the country towards attaining middle-income status by 2020 and
accelerating poverty reduction. EDPRS 2 focuses on four thematic areas (i) economic
transformation for accelerated economic growth; (ii) rural development to ensure sustainable poverty
reduction; (iii) productivity and youth employment, with an emphasis on appropriate skills and
productive employment; and (iv) accountable governance. The focus of EDPRS 2 reflects emerging
priorities based on the findings of the Household Living Conditions Survey13
(2010/11) and five
principles14
from lessons learned from EDPRS 1. The achievement of EDPRS 2 objectives is
anchored on sustained improvements in education, health, social protection, sound public finance
management and private sector development. The ambitious targets of EDPRS 2 necessitate rallying
all stakeholders through innovative, harmonised and integrated collaborative approaches to support
Rwanda’s vision of rapid, inclusive and green growth.
2.2.4 Sector and development programme. The 2010–15 Education Sector Strategic Plan (ESSP)
has been revised and will cover 2013–18 in tandem with EDPRS 2. The revised ESSP is aligned to the
“Productivity and Youth Employment” priority thematic area of EDPRS 2 and aims to increase the
coverage and the quality of twelve-year basic education (12YBE); it prioritises skills development to
strengthen the relevance of education, with a focus on core literacy and numeracy skills in basic
education, while strengthening TVET and the provision of higher education. The MINICOM is
preparing a Productivity and Youth Employment strategy to consolidate, rationalise and expand
different businesses and entrepreneurship development programmes that are scattered across various
ministries and agencies. The strategy and programme is expected to boost entrepreneurship and job
creation.
2.3 Bank Group portfolio status
As of end-January 2013 the Bank’s portfolio comprised 20 operations (see Annex XI).
These included 16 sovereign loans and grants and four private sector operations amounting to a total
commitment of UA 280.7 million. The Bank’s portfolio distribution by sector shows that
infrastructure (energy, transport and water) accounts for 62% of the total commitments, followed by
agriculture, 18%; private sector, 12%; human development, 5%; and multi-sector, 2%. The Rwanda
CPPR (2012) clearly demonstrated that the portfolio performance has improved from an overall rating
of 2.4 in 2011 to 2.53 in 2012. There have also been remarkable improvements in the disbursement
rate, from 18.1% in 2011 to 32% in 2012. There were no problematic or potentially problematic
projects. The active sovereign portfolio has an average age of 3.5 years with no ageing projects.
12 Programme for Sustainable Growth for Jobs and Exports, the Vision 2020 Umurenge Programme (VUP), and the Governance Programme. The VUP was a main instrument in providing a decentralised, integrated programme designed to reduce rural poverty. 13 EICV 3. 14 Innovation, Emerging Priorities, Inclusiveness and Engagement, District-led Development, and Sustainability.
9
III. RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILITY
3.1 Link with the CSP, country readiness assessment and analytical works underpinnings
3.1.1 Link with CSP: The SEEP is anchored in the Bank’s CSP 2012–16 for Rwanda. The CSP
aims at promoting economic competitiveness for inclusive growth and poverty reduction through two
strategic and complementary pillars: (i) Infrastructure Development and (ii) Enterprise and
Institutional Development. The SEEP aligns to the second pillar of the CSP, which emphasizes skills
and innovative entrepreneur development. The SEEP is also fully aligned with the priorities of the
Bank’s ADF-12, the Medium Term Strategy, the upcoming Human Capital Development Strategy
(HCDS) and the Private Sector Development Strategy (PSDS) (paragraph 1.2).
3.1.2 Country readiness assessment—full compliance with Bank Group safeguards policy. Rwanda fulfils all prerequisite conditions for a Programme Based Operation as outlined in table 2.
15
Rwanda enjoys overall political and economic stability. GoR’s commitment to poverty reduction is
very strong, with a well-designed EDPRS being successfully implemented within a viable
macroeconomic and financial framework; there is a strong partnership and policy dialogue between
the GoR and Development Partners (DPs), and an effective aid coordination mechanism is in place.
The fifth review under the PSI was successfully completed in November 2012 and confirmed that
implementation of the programme is on track and the macroeconomic framework is stable.
Table 2. Prerequisites for Sector Budget Support
3.1.3 Analytical work underpinnings.16
The design of SEEP has been informed by key findings
from several diagnostic studies and reports carried out by the Bank, GoR and other DPs. These
include AfDB’s draft analysis of Rwanda’s Education System; AfDB’s draft analysis on Suspension
of Aid to Rwanda, which assesses the impact of the economy and progress towards achieving MDGs;
15
Bank Group Policy on Programme Based Operations (PBO)—ADB/BD/WP/2011/68/Rev.3/Approval—
ADF/BD/WP/2011/38/Rev.3/Approval. 16 See comprehensive list in Technical Annex 3.
Prerequisites Comments on the current situation
Government commitment to poverty reduction
GoR’s commitment to poverty reduction is very strong. This is reflected in Rwanda’s Long Term Strategy, the Vision 2020; the EDPRS medium-term framework, used for achieving the country’s long-term development goals (paragraph 2.2.1); and the budget priorities (paragraph 2.1.8). During the EDPRS 1 implementation there has been a significant poverty reduction of 12 percentage points between 2005/06 and 2010/11. EDPRS has a strong strategic thrust on rural development and productivity and youth employment (paragraph 2.2.3).
Macro-economic stability
Macro stability is ensured and the medium-term macroeconomic financial framework is viable. Economic management has improved significantly and is continually being strengthened, allowing for the implementation of adequate macroeconomic policy. Macroeconomic management is anchored in the three-year IMF PSI-supported programme, which is successfully being implemented (paragraph 2.1.4).
Satisfactory fiduciary risk assessment
Several fiduciary risk assessments done in the last eight years point to a relatively strong and improving PFM system. Overall, the fiduciary risk remains moderate due to some challenges mostly having to do with financial reporting and internal auditing in the PFM system. Budget transparency is ensured with a budget classification in conformity with international standards, and an adequate level of information in the budget and the budget execution reports regularly published on the MINECOFIN’s website.
Political stability
The 2011 political stability indicator of the World Governance Indicator (WGI) for Rwanda scored –0.05 (–2.5 is the worst and 2.5 the best), and Rwanda’s percentile ranking of 45.8 compared to a regional average of 34.2. This indicator has also evolved positively over the last decade. The 2012/13 Global Competitiveness Report ranks Rwanda 6th out of 144 countries in terms of public trust in politicians. Presidential elections were organised in 2010 in a calm atmosphere and with a high turnout. Local elections and indirect Senate elections were held in February and September 2011. Both elections were peaceful and orderly. Parliamentarian and presidential elections are scheduled for the third quarter of 2013 and 2017, respectively.
Harmonization
There is a strong partnership between the GoR and DPs, and various levels of dialogue forums exist, including the Development Partners Coordination Group (DPCG), Budget Support Harmonization Group (BSHG), and Joint Budget Support Review (JBSR). SEEP will benefit from various effective aid coordination mechanisms, including the BSHGs, JBSRs and Sector Working Group (SWG) meetings. The JBSR and the SWGs are co-chaired by high-level government and budget support donor representatives. The Bank’s sector budget support operation will also benefit from a well-performing and improving PFM system.
10
the AfDB/GoR study on Leveraging Capital Markets for SME Financing in Rwanda; the 2010 PEFA;
the 2008 and 2012 FRA, Public Expenditure Reviews (PERs); the 2013 Doing Business report; DFID
Rwanda Business Case; IMF country reports; the Budget framework paper 2012/13–2014/15; the
2013 Monetary Policy Statement; JBSR reports; EICV 3 reports; the CSP; the PCRs of the PRSSP-I
to IV; EDPRS 1; and EDPRS 2. Key recommendations include: (i) sustain improvements in the
expansion of the education system while paying attention to quality and the relevance of training for
the labour market; (ii) harness the capabilities of the youth and create employment opportunities,
while addressing the issue of low labour productivity that the country faces; and (iii) improve the
coordination of various business and entrepreneurship programmes implemented by various ministries
and agencies, for a better impact on productive job creation for out-of-schools, school leavers and the
unemployed.
3.2 Collaboration and coordination with other donors
3.2.1 The level of coordination in Rwanda is high and the Bank, through its field office (RWFO),
continues to play an active role in policy dialogue. Budget support operations are coordinated
within the framework of the Budget Support Harmonization Group (BSHG)17
co-chaired by GoR and
a budget support donor. The BSHG, co-chaired by the Bank in 2008 and 2011, is a technical working
group of the Development Partners Coordination Group (DPCG), and its membership is exclusive to
donors who provide budget support. Implementation of GoR’s reform programme is monitored
through the Common Performance Assessment Framework (CPAF) and EDPRS Results Policy
Matrix. The biennial Joint Budget Support Reviews and regular Sector Working Group (SWG)
meetings are organised to discuss EDPRS and sector and thematic issues, and to monitor progress on
the CPAF and EDPRS indicators. The Bank co-chairs the Water and Sanitation Sector Working
Group (SWG) and actively participates in the biannual JBSRs and regular SWG meetings for the
social, economic and governance themes as well as energy, transport, agriculture and education
sectors.
3.2.2 Development partners’ activities in the country. Official Development Assistance (ODA)
amounted to US$ 1.17 billion in 2011/12, up from US$ 938 million in 2010/11, and was provided by
16 development partners. The share of ODA provided through budget support increased from 29% to
33% during this period, indicating a corresponding increase in the use of country systems. A division
of labour (DOL) matrix was adopted in 2010 and limits each development partner’s activities to three
sectors. The government mapped donors to particular sectors by taking into account each donor’s
preferred aid modality, mandate, comparative advantage and track record. The DOL aims to reduce
transactions costs and improve aid effectiveness. The DOL matrix is presented in Technical Annex
IX, and maps the Bank to three sectors including energy, transport and ICT, and water and sanitation,
which are in line with the strategic thrust of the Bank’s current CSP. Certain areas of intervention are
considered to be cross-cutting, including private sector development, job creation and capacity
development.
3.2.3 Key stakeholders consulted. The SEEP was jointly designed with the GoR in close
consultations with major DPs, including the World Bank, Belgium, EC, France, Germany,
Netherlands, Sweden, Switzerland, DFID and the United States. All partners consulted underscored
the Bank’s intervention through an SBS as “needed and timely”. Other stakeholders, including Civil
Society Organizations (CSOs) and the private sector, were also engaged.
3.3 Outcomes of past and on-going similar operations and lessons
Previous PRSSPs I–IV have achieved significant results (Technical Annex VII), and key
lessons learned have been integrated into the design of the SEEP. The four PRSSPs contributed to
strengthening PFM; improving the business environment, including the financial sector; and
enhancing institutional capacity. This has been achieved as a result of combined support from DPs
17 The BSHG includes DPs providing general and sector budget support, including the African Development Bank, the World Bank, the European
Commission, the Department for International Development (cochair July 2012 to the present), , Belgium, Germany and the Netherlands. USAID is
currently an observer in the BSHG. The Global Partnership for Education is providing SBS.
11
and strong implementation of reforms by the GoR. Key outcomes include the improvement of
Rwanda’s position in the Doing Business ranking, from 139/155 in 2006 to 45/183 in 2011, and its
strengthened PFM as confirmed by the 2010 PEFA and the 2011 FRA (Technical Annex II). Although
considerable progress has been made, reforms need to be pursued and should focus on (i) mitigating
binding growth constraints; (ii) job creation; and (iii) harnessing achievements in the business
regulatory environment by boosting private sector investment and enterprise development. Lessons
learned from previous operations have been incorporated into the design of the SEEP and are
summarised in Technical Annex IX.
3.4 Relationship with on-going Bank operations
There is a strong relationship with other Bank operations. The enterprise development and
productivity and youth employment supported through the SEEP complements other projects and
programmes in the Bank’s portfolio. These include the Competitiveness and Enterprise Development
Project II (CEDP-II), the Support for Policy and Strategy Development project (SPSD) and the Fund
for African Private Sector Assistance (FAPA) Technical Assistance to the Private Sector Federation.
All of these are strengthening agencies, ministries and the private sector’s technical capacity in the
areas of enterprise development, the financial sector, and policy design and implementation. Given its
policy focus, the SEEP is complementary to the Bank’s recent operations in the financial and energy
sectors,18
the Livestock Infrastructure Support Programme (LISP), the Support to Science and
Technology Skills Development (STSDP) and the Regional ICT Center of Excellence project, as well
as to infrastructure projects that are addressing key bottlenecks to growth. Finally, the Bank is
providing capacity-building support to Rwanda’s National Institute of Statistics (NISR) to strengthen
the country’s monitoring and evaluation capacity.
3.5 Bank’s value added and comparative advantages
3.5.1 The Bank’s value added. The Bank has considerable experience and expertise in PBOs in
Rwanda. It has also gained experience from designing and implementing similar programmes
focusing on education and employability, fiscal consolidation, protection and promotion of basic
services and social inclusion, including for Côte d’Ivoire, Ethiopia, Malawi, Morocco and Tunisia.
Through continual policy dialogue, in particular through RWFO, the Bank informed GoR’s reform
programme and emphasised the need to deepen reforms targeting improved skills, employability and
entrepreneurship development. During EDPRS implementation, the Bank will continue the policy
dialogue to help sustain the momentum of reforms in youth employment, productivity, skills and
entrepreneurship development. Through SEEP, the Bank will also contribute to the implementation of
the Paris Declaration, the Accra Agenda for Action and the Busan Partnership by increasing the level
of aid on budget, using national systems and joint missions, avoiding parallel PIUs and enhancing aid
predictability.
3.5.2 The Bank’s comparative advantages. The Bank utilises its main comparative advantage by
facilitating dialogue and analytical work under the Youth Employment Initiative for Africa and also
under the umbrella of joint policy dialogue within the framework of BSHG. The Bank made an
important contribution through participating in, and co-chairing, the BSHG in 2008 and 2011, where
RWFO facilitated agreement on the CPAF and other joint budget support processes. The Bank has
continued to participate and contribute actively to subsequent BSHG dialogue events. The 2010
OPEV evaluation on Budget Support noted that the Bank benefitted from participating in aid
coordination, particularly budget support. Through RWFO, the Bank has attained a central position in
terms of policy dialogue both with GoR and DPs, enabling the Bank to provide technical advice on
GoR priorities and to facilitate dialogue between GoR and DPs, as well as support the in-country aid
coordination mechanism effectively. Through the SEEP, the Bank will continue to play an active role
in policy dialogue on Rwanda’s development and reform agenda.
18 Credit lines to Bank of Kigali and the Rwanda Development Bank and a loan to the KivuWatt energy project.
12
3.6 Application of good practice principles on conditionality
Good practice principles on conditionality have been applied. The SEEP is fully aligned to
the EDPRS 2 (paragraph 2.2.3) and its prior actions are harmonised with government policy action
(appendix 3), focusing on critical action relevant and achievable within the programme’s time frame.
3.7 Application of Bank Group non-concessional borrowing policy
Rwanda is classified as an ADF country, eligible for only ADF financing. The country is also a
beneficiary of the Heavily Indebted Poor Country (HIPC)/Multilateral Debt Relief Initiative (MDRI).
Consequently, and in line with its Medium Term Debt Strategy, the public sector has restricted its
funding request from Rwanda to only the ADF window in recent years. The design of the programme
has taken into account the Bank Group’s non-concessional borrowing policy adopted in 2008 and the
2010 amendments to the Bank Group Policy on Non-Concessional Debt Accumulation.
IV. THE PROPOSED PROGRAMME
4.1 Programme’s goal and purpose
4.1.1 The overarching goal of the programme is to support Rwanda’s efforts to promote
inclusive growth and poverty reduction. The purpose of the programme is to help GoR consolidate
and sustain its commitment and momentum to reform, with particular focuses on (i) Skills and
Employability; and (ii) Entrepreneurship Development to contribute to accelerated growth and
poverty reduction. Specifically, the operation will support a sector programme of expenditures and
reinforce the implementation of policy measures for reforms aimed at addressing critical skills gaps,
education relevant to the job market and innovative entrepreneurship.
4.1.2 The programme is designed as a Sector Budget Support (SBS) to protect expenditures on
education and employment which are threatened by aid suspension. The FY 2012/13 revised
budget shows that in the area of skills and entrepreneurship development, financial gaps amounted to
US$ 48.3 million (table 3).
The funding of AfDB will help to ease pressures for the implementation of related reforms in these
areas to ensure that the notable achievements already undertaken by GoR are not reversed.
Original
Budget
Budget
Gap
Skills and Employability (MINEDUC) 19,283.4 13,912.6 45.7% 11,366.7 12,613.9
Technical Vocational Education and Training 16,387.4 11,207.4
Higher Education 2,500.0 2,500.0
Science and Technology 396.0 205.2
Entrepreneurship Development 18,781.6 16,506.2 54.3% 14,965.4 14,965.4
MINICOM 11,941.8 11,408.1
Promotion of trade and industry 5,675.7 5,317.1
Promotion of business support and cooperatives 6,266.1 6,091.0
Rwanda Development Board (Business incubation) 6,839.8 5,098.2
Total (Millions RwF) 38,065.1 30,418.9 100.0% 24,852.5 27,579.3
Total (Millions USD) 60.5 48.3 39.5 43.8
Total (Millions UA) 25.61 28.42
Table 3: Financial Gap for Skills and Entrepreneurship Development, FY12/13
Source: MINECOFIN
FY12/13 % of
Budget
Gap
2013 AfDB
Budget
Support
2014 AfDB
Budget Support
(Tentative)
Amounts in Millions of RwF
13
4.2 Programme’s components, operational policy objectives and expected results
4.2.1 To achieve the above-mentioned objectives, the programme prioritises two components.
These are: (i) Skills Development and Employability; and (ii) Entrepreneurship Development. The
two components are complementary and will reinforce and consolidate reforms initiated in education,
job creation and enterprise development. The measures to be supported under these two components
can be implemented within the short- to medium-term framework of target sectors.
Component I. Skills development and employability
4.2.2 Context. GoR’s agenda of transforming from traditional and low productivity–based
agriculture to a more industrial and service economy requires developing a productive
workforce with appropriate and relevant skills. In the field of education and training, Rwanda has
moved towards universal secondary education (12 Year Basic Education). The 12YBE programme is
designed to build a pipeline of skilled and semi-skilled labour, necessary to support innovation,
bolster economic growth and accelerate poverty reduction. Over the past decade the government has
placed increasing emphasis on TVET and higher education. For instance, by 2012, 35% of tertiary
enrolment was in science and technology courses. To ensure the relevance of training, the government
is implementing a multipronged strategy, including the following: (i) promotion of entrepreneurial
culture with entrepreneurship as a mandatory subject in secondary schools since 2009; (ii) promotion
of TVET skills to increase the share of TVET within upper secondary schools; (iii) diversification of
higher education, with incentives for priority academic programmes; and (iv) promotion of a demand-
driven approach.
4.2.3 Rationale. Despite notable progress in education reform, Rwanda still faces challenges in
terms of skills gaps, education quality and relevance for the labour market. The 2012 Skills Gap
Analysis identified critical skills gaps in the labour market. Skills mismatch, limited job growth and
expansion are major contributors to youth underemployment. The skills gap is sizable, especially in
the area of TVET (paragraph 2.1.18). The number of formal sector firms reporting inadequate skills as
a major constraint has doubled since 2006. In 2011, 45% of large firms employing more than 100
employees reported that an inadequate skilled workforce was a major constraint. Therefore, Rwanda
faces a challenge of providing relevant and quality job market skills for supporting economic
transformation.
4.2.4 Measures supported. The proposed Sector Budget Support will contribute to GoR’s goal of
developing a skilled and productive workforce that meets the demands of the labour market as
articulated in the EDPRS 2. SEEP will support a number of reforms and initiatives: (i) TVET
curriculum will be reformed and designed with private sector participation to suit employers’ needs.
This will include the review of TVET curricula to ensure that key transferable soft skills demanded by
the labour market are being provided to all school graduates. (ii) Sector Skills Councils will be
established to provide the private sector with a voice in the entire policy formulation process and the
provision and evaluation of employment-focused education. Sectors Skills Council will be established
in twelve priority sectors (including construction, agriculture, energy, trade and manufacturing,
financial services, ICT and tourism). (iii) SEEP will also support the government to develop a new
policy on scholarship for higher and technical education targeting science and non-science
programmes. (iv) Development of TVET qualification framework will be developed. (v) Mechanisms
will be put in place to assess the relevance of training to the labour market’s needs, such as tracer
studies.
4.2.5 Expected results. These are: (i) Reduced mismatch between supply and demand for skills in the
labour market; (ii) increased private sector participation in education reform; (iii) incentives
mechanisms established to increase acquisition of skills in demand; and (iv) monitoring mechanisms
established to assess the relevance of training for the labour market.
14
Component II. Entrepreneurship development
4.2.6 Context and challenges. EDPRS 2 underscores Rwanda’s development objective of
providing off-farm jobs to 50% of the workforce by 2020, up from 28% in 2012. The majority of
Rwandans are employed in traditional agriculture, a sector marked by the lowest wages and lowest
labour productivity relative to industry and services. The EDPRS 1 assessment revealed that nonfarm
workers are five times more productive than farmworkers and are 50% less likely to be in poverty.
Consequently, moving large numbers of the workforce from traditional agriculture to off-farm jobs is
critical for accelerating poverty reduction and attaining middle-income status by 2020. Achieving
these goals will require creating an additional 200,000 nonfarm jobs per year. Yet, the private sector
remains small and nascent, dominated by micro and small enterprises (99.5% of firms), which provide
low returns to investment, do not generate many jobs and have high rates of failure. GoR has therefore
prioritized innovative entrepreneurship, access to finance and business development to unlock the
potential of the sector. 4.2.7 Rationale. An increase in private sector jobs spurred by increasingly productive and
innovative entrepreneurs is crucial for expanding nonfarm jobs. An array of initiatives19
are
designed for livelihood and economic development, spanning a range of sectors, actors (government,
NGOs and private sector) and beneficiaries. But the activities remain largely uncoordinated and
uneven in terms of depth, quality and capacity, even though they have substantial potential. Presently,
there are over 1 million informal sector household entrepreneurs and less than 300,000 jobs in the
private sector. Existing large enterprises account for less than 5% of off-farm employment. The SME
sector, including formal and informal businesses, comprises 98% of businesses and 41% of all private
sector employment. Most micro and small enterprises employ up to four people, showing that growth
in the sector would create significant non-agricultural employment opportunities. Given the
youthfulness of the population (paragraph 2.1.18) and the high level of underemployment, enterprise
development could stimulate off-farm jobs, particularly for youth and women, to help reduce
vulnerabilities and promote inclusive growth. The SEEP seeks to support GoR policy reform
momentum to scale up nonfarm jobs through enterprise development. Such efforts would address
skills demanded by the job market; foster financial inclusion and innovative technologies for business
development and competiveness; help reduce dependency on the public sector for jobs; and make
nonfarm jobs more profitable to grow and better able to contribute to domestic public revenue.
4.2.8 Measures supported under SEEP. The various interventions being implemented by several
government and other agencies,20
including the private sector, present building blocks for
consolidating and scaling up entrepreneurship. SEEP is aimed at strengthening GoR’s actions
towards the creation of an environment where entrepreneurship and appropriate innovation can
flourish. This includes consolidating all the current initiatives under one umbrella at the national level
and bolstering a “one stop centre” for entrepreneurship at the district and village levels, where young
entrepreneurs can access all the services they need such as training, coaching, microfinance,
administrative support, market information and emerging technologies, to keep their businesses
relevant and competitive. Measures supported by SEEP under this component include: (i) Design of
Productivity and Youth Employment Strategy aimed at consolidating and synchronizing various
initiatives for providing opportunities for entrepreneurship, which currently remain fragmented. (ii)
Establishment and implementation of the Quasi-Equity Fund to be operationalized by the BDF. The
Quasi-Equity Fund will provide financing for selected entrepreneurs and training in basic business
competencies, including business management, record keeping and financial proposal writing. There
will be a special focus on youth hawkers and women vendors for income-generating activities. (iii)
Establishment of business incubators in 12 of the 30 districts. The incubators will facilitate the
19 Examples are the Hanga Umurimo Programme, Business Development Fund (BDF) and Umurenge SACCO. 20 These agencies include the Ministry of Public Service and Labor (MIFOTRA), which has the primary responsibility for fostering formal sector employment; the Ministry of Trade and Industry (MINICOM), whose primary mandate is to guide private sector development; and the Rwanda
Development Board (RDB), which is spearheading business environment reforms and, jointly with MINICOM, implements various entrepreneurship
development programs. The Private Sector Federation (PSF) is also implementing programmes to support enterprise development.
15
establishment and growth of new enterprises and will complement Business Development Centers21
(BDCs) that currently exist in all 30 districts. The BDCs presently provide training, mentorship and
access to IT facilities, and support market linkages and access, among other services; (iv) Roll-out of
Proximity Business Advisory Scheme (PROBAS) to sectors. PROBAS was designed by MINICOM
to complement BDCs by providing business advisory and other support services to rural micro and
small enterprises across the country. Services provided by PROBAS include coaching and mentoring
entrepreneurs at the village level in business management; and (v) Establishment of GoR’s National
Apprenticeship Program (NAP). The NAP will train youth in artisan skills for a period of six months
and provide seed capital ranging from RWF 80,000 to 150,000 (50% grant and 50% loan) to purchase
a business start-up kit upon graduation. This will complement the TVET programme in improving
skills.
4.2.9 Expected results: (i) Improved coordination of entrepreneurship development programmes; and
(ii) innovative funding and information mechanisms scaled up to support entrepreneurship
development.
4.2.10 Prior actions: GoR has demonstrated a strong commitment to improving skills and
employability as well as supporting entrepreneurship development, and several policy measures have
already been implemented. Four prior actions (box 2) have been selected to underscore GoR’s
commitment to skills, employability and entrepreneurship development reforms. The selection of
these policy actions was informed by their importance to achieving GoR’s economic transformation
objectives.
21 GoR has partnered with the private sector to operate the BDCs under management contract.
Box 2. SEEP Prior Actions and Required Evidence
1. Submission of a report by the Minister of Public Service and Labour to the Ministry of Finance and Economic Planning confirming the establishment of the three sectors skills councils, not later than March 15, 2013. Evidence: Copy of the report.
2. Minister of Education’s letter submitting the new policy on scholarship for higher and technical education to the Ministry of Finance and Economic Planning, not later than March 15, 2013. Evidence: Letter of the Minister of Education submitting the new policy.
3. Issuance of a letter by the Minister of Education confirming that the TVET qualification framework has been developed, not later than March 15, 2013. Evidence: Copy of the Letter by Minister of Education submitting a framework document.
4. Issuance of a letter by Minister of Trade and Industry submitting the Productivity and Youth Employment Strategy to the Ministry of Finance and Economic Planning, not later than March 15, 2013. Evidence: Copy of the letter from the Minister of Trade and Industry submitting the Productivity and Youth Employment Strategy..
16
2012/13
Revised Budget
Revenue and grants 1149.5
Total revenue 707.7
Tax revenue 641.2
Non-tax revenue 66.5
Total Grants 441.8
Budgetary support grants (BS) 197.9
of which AfDB 24.7
Capital grants 243.9
Total expenditure and net lending 1425.1
Current expenditure 631.2
Capital expenditure 628.4
Net lending 165.5
Deficit (cash basis) -283.6
Financing 283.6
Foreign financing (net) 355.5
Drawings 370.8Amortization (due) -15.3
Domestic financing -71.9
Table 4: Budget projections in billion RwF
Source: MINECOFIN
4.3 Financing needs and arrangements:
Taking into account the performance in the
July–December 2012 period, the budget for
2012/13 is being revised to reflect the protracted
delays in aid as well as the world economic
prospects. As presented in table 4, the Revised
Government Budget for Fiscal Year 2012/13 is fully
funded. The Bank’s Sector Budget Support will
contribute to funding the budget for the fiscal year in
the form of a grant and a loan. Other DPs such as the
World Bank and other bilaterals are also expected to
contribute to funding the budget for Fiscal Year
2012/13 through sector budgets. Other resources
funding the budget for Fiscal Year 2012/13 include
capital grants (projects) and project loans.
4.4 Programme’s beneficiaries
Youth and women of Rwanda will be the
direct beneficiaries of the programme. They
constitute about 40% and 52% of the population respectively. Through
increased investment in skills and entrepreneurship development, business advisory services and
access to finance, the youth and women will enhance their economic opportunities. Given the
expected positive impact on job creation, MDGs and poverty reduction, the entire population will
indirectly benefit from the programme.
4.5 Programme’s impact on gender
Women will significantly benefit from the Sector Budget Support. About 40% of all
registered entrepreneurs are women. The majority of women, especially in rural areas, live under the
poverty line. About 26% of female-headed households are extremely poor compared to 23% of male-
headed households. Women’s limited access to nonfarm employment remains a key driver of their
high poverty level. Therefore, an SEEP focus to enhance access to economic opportunities (especially
off-farm) skills development, entrepreneurial skills and local business advisory services will have
positive impact, especially for women in the informal sector.
4.6 Environment and Climate Change
The SEEP has been classified as a Category III programme according to the procedures
for the environmental and social impact assessment. Given that SEEP is a Sector Budget Support
operation, the policy reforms it will support will not have any direct negative impact on the
environment. GoR has integrated environmental targets into the EDPRS and subsequently adopted an
Environment and Natural Resources Sector plan (2009–13) to inform its approach to the sustainable
management of the environment and natural resources. Environmental assessment tools have also
been developed to ensure that infrastructure projects are climate-resilient.
V. IMPLEMENTATION, MONITORING AND EVALUATION
5.1 Implementation arrangements
5.1.1 Responsible institution. MINECOFIN will be the executing agency of the SEEP. It will work
in close collaboration with relevant institutions, including the MINEDUC, MINICOM, MIFOTRA,
Rwanda Development Board (RDB) and the National Bank of Rwanda-Central Bank (BNR).
17
5.1.2 Disbursement and funds flow. On fulfilment of the disbursement conditions, the proposed
grant of UA 17.19 million and loan of UA 8.42 million will each be disbursed in single tranches to
fund the execution for the FY 2012/13 budget. The Bank will disburse the funds into a foreign
currency account opened by GoR at the BNR to receive the Rwanda SEEP resources. The local
currency equivalent of the funds deposited at BNR will be transferred to the Consolidated Fund
(Treasury Account) of the Government. The SEEP resources will be included in the GoR budget
under the relevant beneficiary sectors. These resources will then be used to fund the SEEP in line with
the country’s systems. The expenditures funded by the SEEP will be audited (each sector
independently) by the Office of the Auditor General within the framework of the country’s Public
Financial Management system. The government will make payments to various beneficiaries from the
Treasury Single Account, which is part of the Integrated Financial Management and Information
System (IFMIS). MINECOFIN will be required to send a letter to the Bank confirming that the
amount deposited in the foreign currency account at BNR has been credited to the Government’s
Treasury Account. This letter will, among other things, clearly indicate the exchange rate used in
transferring the funds from the BNR foreign currency account to the consolidated fund. The 2007 IMF
safeguards update assessment noted that the BNR had strengthened its safeguards since 2003.
External audits have been completed on time, the Committee of Auditors is operational, and BNR’s
Internal Audit Department has contributed to the strengthening of controls in monetary programme
data management. The audit opinion on BNR accounts for the year ended December 31, 2010, is
unqualified (clean) and in compliance with international financial reporting standards. The next
safeguards assessment report for the BNR is planned for the second half of 2013.
5.1.3 Fiduciary arrangement. Rwanda has benefitted from several fiduciary risk assessments during
the last eight years, including PEFA assessments in 2007 and 2010. The overall trajectory for Rwanda
was very positive in that improvements were recorded in 16 indicators, with no changes in 12
indicators and marginal reductions in 3 indicators. The weaknesses identified in the PEFA
assessments have largely been addressed within the PFM Reform Strategy 2008–12. A number of
other Fiduciary Risk Assessment (FRA) reviews have been undertaken, including a Country Financial
Accountability Assessment (CFAA) in 2005 and FRAs in 2008 and 2012. All these reviews point to a
relatively strong and improving PFM system. Overall, the fiduciary risk remains moderate due to
some challenges mostly having to do with financial reporting and internal auditing in the PFM system.
A PFM action plan has been implemented to continue strengthening the PFM system under the PFM
Reform Strategy 2008–12, which has been extended to June 2013. An independent evaluator, the
Dutch firm ECORYS, concluded that the PFM Reform Strategy achieved 80% of its objectives by
November 2012. Key PFM reforms are also part of the CPAF. Budget transparency is ensured through
a budget classification in conformity with international standards, and adequate public dissemination
of the budget and budget execution reports, which are regularly published on MINECOFIN’s website.
Because the SEEP is a Sector Budget Support, the assessment was extended to the beneficiary sectors.
The MINICOM and MINEDUC have adequate PFM controls to support this programme. Various
fiduciary controls were discussed with GoR to ensure that the Bank’s support is allocated and utilized
only for financing the SEEP. The main fiduciary control for this Sector Budget Support is the Rwanda
budget law, which contains a detailed breakdown of GoR expenditures for 2012/13, including
programmes to be funded by SEEP. The government is committed to utilize these resources within the
agreed spending plan. Only the Minister of Finance has the power to authorize budget expenditure
deviation within the budget line of up to 20%, and any deviation beyond that would require
parliamentary approval. It should also be noted that transfer of an approved budget across
programmes in the same ministry requires cabinet approval. Furthermore, during JBSR, the AfDB
team will closely follow up on budget execution to ensure that funds for SEEP have been used as
intended.
18
5.1.4 Procurement arrangement. In line with the Bank Group Policy on Program Based
Operations, procurement for the SEEP will be done following country procurement systems in
accordance with the Rwanda Public Procurement Law No. 12/2007 enacted in 2007 and the
subsequent regulations issued in 2008. The Public Procurement Law is based on the UNICITRAL
model law. Therefore it is generally consistent with international standards, contains most elements of
the modern procurement legal and regulatory framework and hence is acceptable. Overall risk rating
in public procurement, based on the assessment (Annex V), is “moderate” with positive trends.
Rwanda has made substantial progress in procurement reforms as evidenced in its good progress in
the Public Expenditure and Financial Accountability (PEFA) assessment in 2010, when it was rated
A. This was an improvement from its B in 2007 with respect to the PI-19 indicator related to
competition, value for money and controls in procurement, with a continued positive and upward
trajectory.
5.1.5 Audit arrangement. In line with the Bank Policy on PBOs and the Paris, Accra and Busan
declarations, the implementation, monitoring and evaluation of the SEEP will follow the country’s
systems, including audit arrangements. Under the national system, each ministry/sector produces
annual financial statements, which are audited by the Auditor General. The Auditor General also
produces an audit opinion on each sector. Government-wide audits and audit opinions are
subsequently consolidated to produce an overall audit report with an overall audit opinion. For the
SEEP, MINECOFIN will submit three audit reports to the Bank. These will be (i) the consolidated
GoR audit report; (ii) the MINEDUC Audit Report; and (iii) the MINICOM Audit Report. The Office
of the Auditor General (OAG) issued qualified audit opinions on MINEDUC, MINICOM and the
Consolidated Financial Statements for the year ending June 30, 2011. The Accountant General and
sector ministries are working to address the issues raised by the OAG, particularly regarding the
quality and timeliness of financial statements, the improvement of which is also included as a policy
action in the PFM Reform Strategy. The government’s consolidated financial statements and the
sector financial statements for the year ending June 30, 2012, have been submitted to the OAG within
the statutory time limit, and the OAG is in the process of finalising the audit. The OAG will present
the consolidated audit report for the year ending June 30, 2012, to Parliament by July 2013 for
adoption. In line with GoR’s transparency policy, the summary audit findings will be uploaded on
MINECOFIN’s website. Hence the audit findings and the follow-up actions will be available in the
public domain so that interested stakeholders, including DPs, will have access to the reports.
5.2 Monitoring and evaluation arrangements
5.2.1 Institution responsible. MINECOFIN will be responsible for the monitoring and evaluation of
the SEEP. MINECOFIN is also in charge of the BSHG secretariat and has demonstrated its capacity
to effectively monitor the implementation of the Bank’s previous budget support operations as well as
the budget support operations of other donors.
5.2.2 Monitoring system. The SEEP will use the existing institutional arrangements for monitoring
the implementation of the EDPRS. The supervision of the SEEP will be done through the biannual
Joint Sector and Joint Budget Support Review (JSR and JBSR) meetings and the meetings of the
SWGs. The Bank, through its field office in Rwanda (RWFO), will actively participate and contribute
to these reviews.
5.2.3 Evaluation system. To promote mutual accountability, a Partnership Agreement was signed by
the government and the key budget support donors in October 2008. The JSR and JBSR will provide a
platform for the Bank to evaluate the implementation progress of the SEEP. Moreover, a joint Bank
GoR/PCR will be prepared at the end of the programme.
19
VI. LEGAL DOCUMENTATION AND AUTHORITY
6.1 Legal documentation
The financing instrument used for this operation will be an ADF Grant of UA 17.19 million and
an ADF Loan of UA 8.42 million in the form of Sector Budget Support to the Republic of Rwanda
from the ADF-12 allocation. The grant will be governed by a Protocol of Agreement, and the loan by
a Loan Agreement, both to be signed between the Fund and Rwanda.
6.2 Conditions associated with Bank’s intervention
6.2.1 Prior actions. Before the Grant proposal is presented to the Board for approval, GoR shall
provide evidence to the Fund that the measures outlined in box 2 have been implemented.
6.2.2 Entry into force of the Grant and Loan Agreement. The Grant shall enter into force upon its
signature by the Fund and the Republic of Rwanda. The entry into force of the Loan Agreement shall
be subject to fulfillment by the Borrower of the provisions of Section 12.01 of the General Conditions
Applicable to Loan Agreements of the Fund.
6.2.3 Conditions precedent to the disbursement of the loan and the grant for a total sum of UA
25.61 million. The disbursement of the respective tranches of the Loan and the Grant will be subject
to the beneficiary maintaining an appropriate macroeconomic framework as evidenced by IMF reports
or assessments, and fulfillment of the following specific condition: Transmission to the Fund of the
Bank details for a Treasury account with the National Bank of Rwanda-Central Bank (BNR), for
purposes of receiving the resources of the Grant and the Loan.
6.3 Compliance with Bank Group policies
The SEEP complies with all applicable Bank Group policies and guidelines, including the Bank’s
PBO policy.
VII. RISK MANAGEMENT
Risks Probability Mitigating measures
Regional political instability: Instability in the Great Lakes Region continues to be a risk to Rwanda’s economic stability and to the consolidation of the development process. Several elections are scheduled in the region in 2012–13, and instability that could arise in neighbouring countries could have a spill over effect on Rwanda.
Moderate Stakeholders have demonstrated a strong commitment to maintaining peace and stability. At the international level of the United Nations and African Union, and the regional level of the International Conference on the Great Lakes Region (ICGLR) and East African Community (EAC), support continues for the promotion of peace and stability in the region.
Macroeconomic instability: Rwanda remains vulnerable to external shocks, which could include an unforeseen rise in the international price of oil and other commodities, reversal of the global economic recovery, reduced DP financing and delays in aid. These could affect GoR’s commitment to reforms and investments.
Moderate Implementation of the IMF PSI programme, and GoR’s commitment to sound fiscal and monetary policies, ongoing efforts to diversify the economy, promotion of trade and increased DRM. Donor commitment to enhance aid predictability.
Fiduciary risk:. Successful implementation of the comprehensive reform programme has strongly improved the PFM system as demonstrated by the 2010 PEFA and the 2012 FRA. Due diligence of the fiduciary risk was undertaken by the Bank during the appraisal mission and concluded that the procurement system is reasonably adequate to support the proposed intervention. But following the decentralization of procurement to the entities, the challenge remains with respect to staffing capacity and qualifications. Internal audit and oversight functions can be further strengthened.
Moderate
The GoR continues to implement a PFM reform programme with support from the DPs, which will further minimise fiduciary risk. The GoR’s zero tolerance with respect to corruption, and its commitment to enhancing public financial transparency and accountability, will also contribute in minimising this risk.
20
Risks Probability Mitigating measures
Implementation capacity and reform delays: Retention of staff in the civil service is a challenge, and a relatively high turnover may contribute to the weakening of institutional capacity. Low predictability of donor funding and recourse to non-concessional borrowing could lead to unsustainable debt levels with potential negative impact on the implementation of the EDPRS and the SEEP.
Moderate
The SCBP and a pay and retention strategy will be implemented, which will contribute to strengthening the GoR’s implementation capacity and reducing staff turnover. Delays in implementation of reforms will be mitigated by the very strong commitment of the GoR to pursuing its reform agenda. Debt sustainability is being monitored under the IMF’s PSI programme and the Bank will consider supporting the strengthening of MINECOFIN’s debt and risk management capacity
VIII. RECOMMENDATION
Management recommends that the Board of Directors approve the proposed Loan of UA 8.42 million
and Grant of UA 17.19 million from the resources of ADF-12 to the Republic of Rwanda in the form
of Sector Budget Support for the purposes and subject to the conditions stipulated in this report.
I
APPENDIX 1. LETTER OF DEVELOPMENT POLICY
II
III
IV
V
VI
APPENDIX 2: PRESS COMMUNIQUE BY IMF
IMF Executive Board Completes Fifth Review Under the Policy Support Instrument for
Rwanda Press Release No. 12/463
November 28, 2012
The Executive Board of the International Monetary Fund (IMF) completed today the fifth review
under a three-year Policy Support Instrument (PSI) for Rwanda. In completing the review, the Board
approved a waiver of nonobservance of the quantitative assessment criterion on net domestic
financing (NDF).
The Executive Board approved a three-year PSI for Rwanda on June 16, 2010 (see Press Release No.
10/247). The IMF's framework for PSIs is designed for low-income countries that may not need, or
want, IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their
policies. PSIs are voluntary and demand driven (see Public Information Notice No. 05/145.)
Following the Executive Board’s discussion on Rwanda, Mr. Naoyuki Shinohara, Deputy Managing
Director and Acting Chair, stated:
“The Rwandan authorities are to be commended for their satisfactory implementation of the economic
program supported by the Policy Support Instrument, carried out against a challenging global
economic environment. Economic growth has continued to be strong, inflation remains contained, and
poverty has further declined.
“Fiscal and monetary policies remain appropriate. Delays in budget support have required postponing
some government spending, and fiscal policy during the remainder of the fiscal year will need to be
carefully executed to minimise recourse to domestic bank financing and avoid crowding out the
private sector. Meanwhile, the central bank has appropriately tightened the monetary stance to slow
credit growth and mitigate exchange rate and inflation pressures.
“Strengthening the domestic revenue base and public financial management are important objectives,
including for reducing aid dependency. The recommendations of a recent technical assistance mission
on tax policy and revenue administration represent a good basis for broadening significantly the tax
base.
“The government has taken important steps to strengthen Rwanda’s debt management capacity. It will
be critical in the period ahead to continue with prudent management of debt and complete large
ongoing investment projects. It will also be important to maintain the momentum of structural reforms
to improve the business environment, strengthen competitiveness, and broaden the economic base, in
order to sustain economic growth and further reduce poverty,” Mr. Shinohara added.
VII
APPENDIX 3 Operation policy matrix – Common Performance Assessment Framework - CPAF (areas relevant for the
SEEP operation)22
Medium term objectives
Policy actions (outputs) Institution
responsible
Outputs
indicator
Outcomes
indicators Targets outcome CSP goals
2012/13
2013/14 2012/13 2013/14
EDPRS: The Growth for Jobs and Exports flagship programme Competitiveness and enterprise
development Component A: Skills and Employability
Increased private sector participation in education reform for enhanced competiveness
Design nine (9) TVET curricula designed with private sector participation
12
MINEDUC /WDA
Measures implemented as confirmed in JBSR/JSR
Proportion of employers who are satisfied with TVET graduates
68% 71%
Improving the quality of education and training for a competitive and productive workforce so as to bolster enterprise development
Establish three (3) sector skills councils
7
Incentive mechanisms established for increased acquisition of skills in demand
Design and approve policy on scholarship for higher and technical education
Implementation of scholarship for higher and technical education
Share of formal sector firms reporting inadequate skills as a constraint
28.5% (2011-World Bank enterprise survey)
25%
Develop and approval of TVET qualification framework
Roll out of TVET qualification framework
Increase the number of TVET graduates overall and the share of female TVET graduates
75,177 50%share for female graduates
Monitoring mechanisms established to assess and ensure relevance of training to labour market needs
Conduct tracer studies in public higher learning institutions
6 higher learning institutions conducting tracer studies
Proportion of curriculum reviews and development informed by tracer studies
60% 70%
Scale-up tracer studies to all TVET institutions
Tracer studies conducted by 90% institutions
Component B: Entrepreneurship Development
Supporting entrepreneurship and enterprise development
Innovative funding and information mechanisms established to
Establish and implement Quasi-equity scheme of the Business Development Fund for business start-ups and others enterprises
Quasi equity guarantee scheme capitalized and volume of loan/ number of recipient.
MINICOM/ RDB/ PSF
Measures implemented as confirmed in JBSR/JSR
Quasi-equity fund is capitalized
0
Quasi equity guarantee scheme capitalized and volume
22
The CPAF is covering all areas of the EDPRS and includes 45 indicators and 81 measures. The SEEP is focusing on certain aspects of the CPAF which are presented in the
operation policy matrix
VIII
Medium term objectives
Policy actions (outputs) Institution responsible
Outputs indicator
Outcomes indicators
Targets outcome CSP goals
2012/13
2013/14 2012/13 2013/14
support entrepreneurship
Roll-out the Proximity Business Advisory Scheme (PROBAS)
Scale up the Roll-out the Proximity Business Advisory Scheme (PROBAS)
Number of sectors served by PROBAS
128
of loan/ number of recipient. 416
Establish 12 Business Incubators in 30 existing Business Development Centers
20
MINICOM/ RDB/ PSF
Measures implemented
as confirmed in JBSR/JSR
Number of business incubators operational
12 20
Provide technical and financial support to youth hawkers and women vendors for income generating activities ( 1000)
29000
Number of youth hawkers and women vendors receiving technical and financial support from the Business Development Fund
400 (2010/11)
29,000
Improved coordination of entrepreneurship development programmes
Establish the National Apprenticeship Programme (NAP)
Scale-up the National Apprenticeship Programme (NAP)
MINICOM/ RDB/ PSF
Students graduate from NAP following six (6) month training and provided with a business start-up kit
1,200 2000
Develop a Productivity and Youth Employment strategy.
Adopt the Productivity and Youth Employment Strategy
Holistic Productivity and Youth Employment Strategy development
Adopt the Productivity and Youth
Employment Strategy
IX
Appendix 4: Key Economic Indicators, 2008-2016
Est. Prog. Proj. Prog. Proj.
2008 2009 2010 2011 2011 2012 2012 2013 2014 2015 2016
(Annual percentage change, unless otherwise indicated)
Output and prices
Real GDP growth 11.2 4.1 7.5 7.0 8.8 6.8 7.8 7.0 7.0 6.8 6.5
Real GDP (per capita) 8.9 2.0 5.3 4.8 6.6 4.6 5.4 4.8 4.8 4.6 4.3
GDP deflator 12.6 11.0 2.1 4.7 4.8 6.1 7.7 6.0 4.9 4.6 4.5
Consumer prices (period average) 15.4 10.3 2.3 3.9 6.0 6.5 8.1 6.8 5.5 5.0 5.0
Consumer prices (end-of-period) 22.3 5.7 0.2 7.5 8.7 5.5 7.5 6.0 5.0 5.0 5.0
External sector
Exports, f.o.b. (in US$ basis) 51.4 -12.2 26.5 26.3 36.1 9.5 4.2 7.7 9.2 3.7 10.2
Imports, f.o.b. (in US$ basis) 51.5 13.5 8.5 29.2 45.4 -4.5 4.9 -3.6 -5.0 -2.2 3.0
Export volume 21.8 -20.0 11.6 5.6 9.2 12.9 9.0 9.2 12.6 9.2 11.2
Import volume 6.4 7.4 3.8 14.6 32.0 0.4 4.8 -2.8 -4.4 -0.7 2.6
Terms of trade (deterioration =-) -12.8 3.8 8.5 6.1 13.1 2.0 -4.5 -0.6 -2.4 -3.7 -1.2
Money and credit 1
Net domestic assets 2 10.3 4.9 2.2 7.0 11.4 19.1 25.7 23.2 20.2 11.6 4.9
Domestic credit 2 20.5 3.8 9.4 4.7 10.8 23.1 24.1 24.3 20.7 12.0 5.3
Government 2 -18.1 0.2 2.4 -7.9 -8.9 16.2 12.5 0.0 0.0 0.0 0.0
Economy 2 38.6 3.6 7.0 12.6 19.7 6.9 11.6 24.3 20.7 12.0 5.3
Broad money (M2) 24.2 13.1 16.9 16.0 19.6 15.3 17.0 14.4 13.2 12.7 12.3
Reserve money 3 23.5 0.3 12.5 16.0 19.6 15.3 17.0 14.4 13.2 12.7 12.3
Velocity (GDP/M2; end-of-period) 5.5 5.6 5.3 5.1 5.0 5.0 5.0 4.9 4.9 4.9 4.8
(Percent of GDP)
National income accounts 9.1 5.1 4.2 7.0 3.8 7.7 4.3 6.8 9.6 12.0 13.8
National savings 23.5 22.4 21.9 25.1 25.3 23.3 25.1 23.6 22.7 22.7 22.6
Gross investment 13.1 12.4 10.9 11.1 12.0 11.4 13.6 13.9 14.2 14.5 14.8
Of which: private (including public enterprises)
Government finance 4
Total revenue (excl.grants) 12.6 14.9 12.6 13.7 13.9 13.9 14.1 14.2 14.4 14.7 14.9
Total expenditure and net lending 22.6 26.4 25.9 28.7 28.3 27.4 27.2 25.5 23.9 23.3 22.6
Capital expenditure 8.2 11.1 10.2 13.1 12.6 13.0 12.6 10.7 8.7 8.4 8.0
Current expenditure 15.1 14.5 14.8 14.9 15.1 14.4 14.6 14.3 14.7 14.4 14.4
Primary fiscal balance 5 -3.3 -2.2 -5.2 -5.2 -5.1 -4.6 -4.4 -3.6 -4.2 -3.8 -3.3
Domestic fiscal balance 6 -5.6 -5.3 -8.1 -8.1 -7.9 -6.7 -6.4 -5.8 -6.3 -5.7 -5.0
Overall fiscal balance (payment order)
After grants -0.2 -2.2 -0.1 -4.2 -3.5 -1.8 -1.9 -1.1 -0.3 -0.2 -0.7
Before grants -10.0 -11.5 -13.3 -15.0 -14.4 -13.5 -13.0 -11.3 -9.5 -8.6 -7.7
External sector
External current account balance
Including official transfers -4.9 -7.3 -6.0 -5.2 -10.6 -9.1 -12.7 -8.9 -5.3 -4.0 -2.7
Excluding official transfers -14.4 -17.3 -17.7 -18.1 -21.7 -15.7 -21.4 -17.4 -13.5 -10.9 -9.1
External debt (end of period) 14.8 14.8 14.9 17.7 18.5 19.2 19.1 20.4 18.5 17.3 16.4
Net present value of external debt
(percent of exports of goods and services) ... ... 101.1 98.1 100.5 108.7 118.9 132.5 114.9 104.9 94.8
Scheduled debt service ratio
(percent of exports of goods and services) 2.1 2.6 3.4 5.7 5.6 5.0 5.7 7.5 9.3 10.4 9.4
Gross reserves (months of imports of goods and services) 7 4.7 5.4 4.5 5.7 4.6 5.3 4.2 3.7 3.0 3.0 3.5
Gross reserves exluding encumbered assets
(months of imports of goods and services) 7 5.7 4.3 5.3 3.7 3.4 3.0 3.0 3.5
(Millions of U.S Dollars)
Gross reserves 596.4 742.2 814.2 899.2 894.2 847.6 786.6 651.9 534.6 552.5 705.4
Memorandum item:
Nominal GDP (billions of Rwanda francs) 2,565 2,964 3,253 3,643 3,709 4,128 4,300 4,878 5,475 6,116 6,806
Sources: Rwandan authorities; and IMF staff estimates and projections.1 Projections are based on the program exchange rate of RwF per US dollar of RWF571.24 for 2010 and RWF594.45 thereafter; 2 As a percent of the beginning-of-period stock of broad money.3 Increase in 2007 reflects rebasing of the monetary program; reserve money growth was limited to 13 percent after correcting for the rebasing at end-2006.4 On a fiscal-year basis (July-June). For example, the column ending in 2011 refers to FY2010/11.5 Revenue excluding grants minus current expenditure except interest due and exceptional expenditure (AU peacekeeping expenditures and spending on
on demobilizing and integrating militia groups) minus domestically financed capital expenditure.6 Revenue excluding grants minus current expenditure (excluding external interest) minus domestically financed capital expenditure and net lending. 7 Data from 2009 onward includes SDR allocation.