This report provides the first ever public environmental expenditure in Rwanda. It was written under the theme: “Putting environment on budget”. The objective was to evaluate the appropriateness in the use of funds in the environment sector. It was supported by UNEP/UNDP funded Poverty-Environment Initiative. The intended outcome of the initiative is the integration of environment for poverty reduction into national policy and district planning, policy and budget processes to implement the Economic Development and Poverty Reduction Strategy (EDPRS) 2008-2010, Vision 2020 and the Millennium Development Goals.

The findings in this report are as a result of wide consultations within and across sectors, districts and the review of national documents and international literature from mid-September to end of November, 2009.The authors also benefited from being registered to access and analyze data from Development Assistance Database and Organization for Economic Co-operation and Development. These sources also enriched their findings.

From start, it was necessary to define environmental expenditure so as to determine the boundary for this review and possibly future ones. World experience points to the conclusion that ‘this is not as straight forward as it seems’. Nonetheless, the consultants used four factors to define the boundary. They are national definition of environment, the classification of government functions, institutional mandates for environmental management and practices by other countries.

When the government’s functional areas were reviewed, it was found that there is a functional area of environmental protection. However, many other aspects of environment fall under other government functional areas like agriculture, industry, infrastructure, to mention but a few. Accordingly, it was decided right from the start to focus the PEER on environment and natural resources sector, as overseen by MINIRENA¹ now, and across other sectors.

In Rwanda, the policy, legal and institutional framework for environment is both young and still evolving when compared with that of most East African Community member states, and other states in Africa. For a country that is committed to ‘green’ its economy, it will require a coordinated, and systematic approach to capacity building, planning and resource mobilization, and a blend with long term critical technical assistance within and across sectors. A coordinated approach within and across is strongly emphasized after finding that the spread of programmes and sub-programmes for environment are wide spread in several sectors.

Another finding is that as Rwanda’s Gross Domestic Product (GDP) continues to grow, it is depicting intra and inter-sectoral shifts. The natural resource based GDP estimated at 35% is still the highest. But Rwanda has stretched its capacity to generate more revenue from new sources. It hopes to do so from the real GDP growth that will increase disposable income. The productive sector under which environment and natural resources falls is already prioritized for additional resources in future, particularly after the government completes its heavily funded infrastructure programme.

However, MINCOFIN recognizes that climate change induced impacts may slow down agriculture’s GDP. But beyond that, they could also impact infrastructure and health. Thus, the cross-sectoral impacts of climate change should start to feature in the macro-economic framework by MINECOFIN, particularly where information permits.

Presently, Rwanda’s dependence on aid is high with 49% of the total budget in 2009 expected to be financed by aid. The per capita Overseas Development Assistance of US$ 64 and as a percentage of GDP of 25.6% are the highest among the East African member states. The government’s preference is for grants over debts. As long as Rwanda is still a favorite recipient of aid in grants, it should use it to its advantage to also invest in environment.

Rwanda’s private funding is growing although the proportion of environment could not be discerned. Foreign Direct Investment flows have steadily grown to even surpass that of giant Kenya for the first time in 2009 [UNCTAD, 2009]. Government should re-orient Foreign Direct Investment so that it too, can benefit environment. The potential for Foreign Direct Investment to increase even further has been improved by Rwanda’s topping the global list of business regulation reformers [WB, IFC, 2009]. With guidance on budgeting by MINECOFIN, the variance between budgeted and actual expenditure is narrowing across all sectors. MINECOFIN has guided sectors to provide only 10% above their previous years’ budget. But total tax revenue is not yet covering recurrent expenditure and the gap does not seem to be narrowing since 2004. That is leaving the country vulnerable to external support. At macro level, transfers and subsidies have the highest expenditure between 2005 and 2008, at 25%. They are followed by goods and services (22%), wages and salaries (20%), capital development (18%), exceptional expenditure (10%), debt (8%) and finally arrears (1%). The proportion of development expenditure to total expenditure on budget has risen from, 11% in 2006 to 15% in 2007 and 23% in 2008.

It must be mentioned at this juncture that the budget execution reports cannot fully capture all the public expenditure for environment. This is because with regard to Overseas Development Assistance: (i) only 67% is recorded in the national budget, (ii) 45% is disbursed using GoR budget execution procedure and, (iii) 50% is disbursed using GoR financial reporting systems. Until all development expenditure forms part of budget reporting, it will be difficult to capture the true magnitude of environmental expenditure. Central Public Investment and External Finance Bureau which is mandated for it, does not classify it by government functional areas. Yet, it is through these that all expenditure on budget is captured.

Environment and Natural Resource sector under MINIRENA has not yet absorbed any public expenditure level to boast of. In 2008, it commanded only 1% of both recurrent and development expenditure on budget. The high development expenditure in 2006 and 2007 is attributed to the water and sanitation, which after 2008 was transferred to MININFRA. The ministries absorbing the highest development expenditure in 2008 were: MININFRA (39%), MINAGRI (16%), MINEDUC (15%), MINISTR (19%), MINALOC (9%), and MINECOFIN (3%). ENR under MINIRENA only absorbed 1%. The implication is that both manpower and activities that could benefit the environment are outside the sector. It equally conveys a mammoth task before the sector to engage others to put environment on budget using resources already allocated to them.

That is the most promising strategy of putting environment on budget. Government would also need to finalise the processes for the operationalisation of the National Fund for Environment so that it is used as an instrument for giving incentives for environmental management. This will complement Environment Fiscal Reform under the Investment Code and other laws.

With regard to intra-sectoral absorption of expenditure, it was found that conservation and protection of environment led in 2008, taking 40% of the sectors budget. It was followed by land planning and management (25%), forestry resources (11%), mining and geology (9%), and integrated water resources (4%).The parent Ministry took 11%.

It becomes apparent that integrated water resources management is the least funded. Unfortunately, the low funding coincides with the growing desire for irrigation. The two do not match unless irrigation is to be predominately funded under donor funded projects.

With regard to execution rates, they were found to have improved over time for both recurrent and development expenditure under the sector. But a few shortcomings need mention. They could have been better if all units were fully staffed so that some expenses e.g wages and salaries are not refunded to the central government and delays in procurement are fully overcome.

Further, both efficiency and effectiveness cannot be fully ascertained because value-for-money audits are yet to be fully institutionalized at Central Public Investment and External Finance Bureau through which much of development expenditure flows. Neither has the Bureau introduced the concept of ‘unit costs’ to rationalize expenditure among homogenous items. In 2002, the office of the Auditor General was able to audit 31.5% of all the public entities. For the above reasons, it will be worthwhile in future for government to invest in additional public expenditure monitoring tools. They are the public expenditure tracking surveys, citizen report cards and Community score cards.

The programme of intensification and sustainable agricultural production systems under MINAGRI utilized more than 5 times the whole budget of environment and natural resources sector in 2008. However, analysis of its broken down development budget for 2009/2010 shows that sub-programmes on Land Husbandry, Water harvesting and Hillside Irrigation project, watershed management, swamp reclamation and irrigation would be equivalent to 40% of entire environment and natural resources sector budget. Accordingly, agricultural sector should be engaged to sustain environment on its budget, and to even increase it. This is because evidence from 42 developing countries over 1981-2003 showed that 1% GDP growth originating in agriculture increased the expenditures of the three poorest deciles at least 2.5 times as much as growth originating in the rest of the economy. But MINAGRI should study whether its subsidized fertilizer programme is not a disincentive to sustainable land use management.

MININFRA’s action plan for 2008 was not detailed in breakdown of its budget. But, going by budget for 2009/2010, its budget for improving and substituting biomass energy for the poor is equivalent to 70% of the forestry resources budget under environment and natural resources sector for the same period.

Further, MININFRA has spent and budgeted for sanitation and hygiene for schools. A more sustainable approach would be that MINEDUC budgets for such although it could solicit for technical backstopping from MININFRA. Only then would MINEDUC appreciate how to handle environmental issues associated with school populations. No doubt, the sectors’ needs for environmental mainstreaming and budgeting will differ. Rwanda Environment Management Authority working closely with MINECOFIN should encourage them to come forward and declare their interests or challenges so that they can receive focused technical assistance. Failure to declare these within environment and natural resources sector and across all other sectors is one of the barriers to learning, improvement and sustainable development.

MINECOM has been spending on biodiversity conservation and development of standards, including those for environment. It has more scope to enlist the private sector for environmental compliance. This is particularly because the market to which Rwanda is promoting exports is becoming environmentally sensitive. MINALOC has included environmental protection as one of the areas to benefit from earmarked conditional grants to districts. It is so small (0.13% of 2009/2010 budget) that at best, it could be used to trigger additional resources rather than address environmental issues. As the institutions close to the people, districts have strategic roles to make a difference in environmental management. Unfortunately, there is a mismatch between the funds allocated and responsibilities devolved to them. Districts utilized only 17.6% of the total budget in 2008. Some of the expenditure directly incurred by Ministries benefits them. Community Development Fund, as an instrument for channeling demand driven capital development to districts is cost-effective. Its intermediation costs are only 4%. Environment was found to rank the 5th preferred area out of eleven. MINELOC should expedite its costing for deepening decentralisation policy so that districts can get the right amount to deliver on their mandates.

As a Ministry overseeing both macro-economic planning and budgeting, MINECOFIN was found to have both the ‘carrot and stick’ to bring about improvement in public expenditure for environment and other sectors alike. The entry point for it lies in the results-based approach to budgeting it has introduced. This will then make it possible to assess the effectiveness of all public expenditure. The present focus on inputs, activities and outputs under the joint sector reviews are not enough to demonstrate the true progress towards the achievement of EDPRs targets. In other wards, it is possible to register increases in soil control measures or tree planting or registering land or making standards and regulations but when they are not related to the magnitude of the problems being addressed. If they fall short of that, Rwanda will not be making a positive score on environmental sustainability.

The planning, budgeting and Medium Term Expenditure Framework Guidelines 2008 which MINECOFIN introduced are a good rallying point for (i) link budget programmes to sector targets over a 5-year period, (ii) link budget programmes to sector activities, (iii) link sector programmes to EDPRS flagship programmes and their indicators. Sectors would need to be trained in their use so that they appreciate their rationale rather than use them to satisfy reporting procedures. Sectors have to also be trained by MINECOFIN in public expenditure reviews. At lower levels, it will be the sectoral action plans from which to track actual budgets for environment. The Smartgov from which public expenditure is being monitored does not yet reflect budgets for activities and outputs. In other words, PEER will continue to exert more demands than any other PER because of its cross-sectoral nature. MINIRENA and Rwanda Environment Management Authority should set aside sufficient resources for it in future.

1. MINIRENA has since then been divided into two ministries of Environment and Lands (MINELA) and Mining and Forestry (MINIFOR)