## _cr03223 — IMF staff draft assessment of fiscal transparency practices in Rwanda

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### Coverage of government, decentralization, and local finances
- Central government budget coverage and exclusions:
  - Excludes the pension fund (Caisse Sociale Rwandaise, CSR); CSR provides information to MINECOFIN annually.
  - Central government 2003 "Votes" included: parliament, the presidency, the Prime Minister’s Office, 15 ministries, 11 provinces, and the city of Kigali.
  - Transfers to districts via MINALOC and to autonomous agencies (établissements publics) such as the National University of Rwanda (NUR) are made; revenues from fees of établissements publics and direct donor support to établissements publics are not included in the budget.
  - Revenues retained by ministries are not captured.
  - Four special funds are partly included in the central government budget (see paragraph 5 in source).
- General government scope:
  - General government (IMF GFS) comprises central government and 106 districts.
- Decentralization and district finances:
  - Legal framework: laws for provinces, districts, urban authorities, and the city of Kigali adopted in 2000 and 2001; the 11 provinces are arms of central government administered by presidentially appointed governors (préfets).
  - Local structure: urban districts contain 1,544 sectors and 9,175 cells.
  - District expenditure assignments include primary and secondary education, health centers, agriculture/forestry, and district road/water networks; devolution is progressing gradually.
  - District budgets are not consolidated centrally; district domestically generated revenues mainly from fees, property taxes, and taxes on rental income.
  - Two 2002 funds to supplement district revenues:
    - Equalization Fund: earmarks 1.5 percent of central government revenues for districts’ recurrent budgets.
    - Common Development Fund: planned to allocate 10 percent of central government revenues to districts’ development budgets.
  - 2003 allocations were less than the earmarked percentages due to insufficient qualifying projects, low administrative capacity, and lack of functioning reporting/control systems.
  - District revenue reporting to central government is irregular; direct donor financing to districts exists outside the government’s budget.

### Off-budget activities, special funds, and external resources
- Road Fund and FARG:
  - Road Fund revenues/expenditures are included in the state budget; Fund for the Victims of the Genocide (FARG) donor-provided resources are not captured in the budget.
- Off-budget spending scale and characteristics:
  - Expenditures from établissements publics’ own revenues and donor resources occur outside the budget; for 2003 such revenues, including grants, amounted to 5–6 percent of domestic revenues, largest shares for a Kigali hospital and higher-learning institutes.
  - Spending from ministries’ and provinces’ bank accounts is replenished by Treasury transfers; the Treasury records transfers as "spending" and does not monitor the subsequent spending, affecting timing and classification more than aggregate size.

### Privatization, government equity, and fiscal risks in the financial sector
- Privatization progress and reporting:
  - Privatization secretariat established in 1996. Of 72 state-owned enterprises slated for privatization in 1997, 43 had been sold by end-2002.
  - 2003 planned privatization included larger firms (telephone, electricity, gas) and tea companies.
  - Privatization receipts net of restructuring costs are held in a separate BNR account; receipts are included in budget reporting despite no formal policy on use and uncertainties on size/timing.
- Government equity holdings and bank exposures (as reported):
  - 49.4 percent share in the Banque Commerciale du Rwanda.
  - 50 percent share in the Banque du Kigali (including ownership by government-owned entities).
  - 4 percent share in the Banque Continentale Africaine du Rwanda.
  - 47 percent direct stake in the Banque Rwandaise du Developpement (also partly owned by government-owned enterprises or banks).
- Banking sector fragility and contingent liabilities:
  - Commercial banks have nonperforming loans amounting to 30–40 percent of their portfolios and most banks are not meeting capital adequacy requirements.
  - A restructuring process began in 2003; the 2003 budget allocated the equivalent of 0.6 percent of GDP for restructuring, with risk this amount may be inadequate.
  - Quasi-fiscal activities have been reduced by privatization and legislation but some continue; utility pricing is inadequate for strong financial positions. Electrogaz management was contracted out in 2003.

### Central bank (BNR) status and government coordination
- Institutional and operational arrangements:
  - BNR has day-to-day operational independence in implementing monetary policy and does not carry out quasi-fiscal activities; institutionally it is an autonomous agency under MINECOFIN and the Act gives it a role of "advising the government on the definition and conduct of economic and financial policy."
  - The government appoints the Governor and all Board members; the Minister of Finance appoints the Committee of Auditors. BNR appears to establish monetary policies with considerable independence despite these appointment powers.
- Formal facilities and coordination provisions:
  - Government overdraft facility: government may borrow up to 240 days an amount equivalent to 11 percent of previous years’ domestic revenues; BNR charges market-based interest on overdrafts.
  - BNR does not pay interest on cash balances and acts as government agent for issuing treasury securities.
  - Residual net profits treatment: 20 percent of BNR net profits are allocated to a general reserve fund; a further portion may be dedicated to special reserves at the Board’s discretion.
  - Coordination between BNR and MINECOFIN needs to be strengthened on short-term projections of net credit to government and government imports.

### Legal, institutional, and budget management framework
- Constitutional and parliamentary context:
  - New constitution adopted by referendum in May 2003; it redefines executive, legislative, and judicial roles. A multiparty system is envisaged; elections expected later in 2003.
  - Legislature to have two chambers; the constitution does not explicitly state the senate approves the annual budget but requires the senate to provide an opinion on the annual budget to the President of the Chamber of Deputies.
  - Parliament may modify the executive’s draft budget but cannot change the overall fiscal deficit; amendments that reduce revenue or increase expenditure must include proposals for offsets.
- Budget legal framework and reforms:
  - Early 2003 primary legal basis: 1979 Decree Law on the Budget and Public Accounting (confirmed by Law No. 01/82 of 1982) with recent annual budget laws incorporating unclear provisions.
  - In mid-2003 an Organic Budget Law (OBL) was being drafted as required by the 2003 Constitution; OBL will include MTBF practices already developed administratively.
  - Modifications to the 1998 external audit law were to be drafted in 2003; new financial regulations and accounting instructions will be needed once laws are adopted.
- Key agencies and responsibilities:
  - MINECOFIN (merged Ministry of Finance and Ministry of Planning in 1997) responsible for budget and finances; internal divisions include budget, treasury, and public accounts departments.
  - CEPEX (Central Projects and External Finance Bureau) handles development budget preparation and monitoring.
  - Rwanda Revenue Authority (RRA), established by law in 1997, collects major taxes; decision taken to transfer nontax revenue collection to RRA though public accounting department inherited the role during the split from Treasury.
  - Responsibilities and accountabilities under the early 2003 arrangement remained unclear on both expenditure and tax sides.

### Tax law, exemptions, and investment incentives
- Tax legal framework and clarity:
  - Constitution: no taxation imposed/modified/removed except by law and no exemption/reduction granted unless authorized by law.
  - Main tax laws include Law No. 08/97 (Direct Taxes), Law No. 06/01 (VAT), excise tax laws, Law No. 07/98 (Duties on Imported Products) and Law No. 09/97 (Code for Fiscal Procedures).
  - VAT Law (2001) is clear; income tax law is not always clear. Absence of national accounting standards complicates taxable profit determination. Trilingual law texts complicate interpretation.
- Investment incentives and discretion:
  - Law No. 14/98 establishing RIPA provides tax incentives and discretion to accord tax advantages (e.g., duty-free importations for NGOs); RIPA administers incentives and the Minister over commerce/industry has significant powers under the RIPA Act, limiting the Minister of Finance’s ability to oppose concessions.

### Tax administration, civil service ethics, and public availability of fiscal information
- RRA operations and taxpayer rights:
  - RRA financed from central government budget but "has been granted considerable independence in its operations and maintains a separate salary structure subject to the approval of the RRA’s Board of Directors."
  - Government "has not interfered with the operation of the national tax administration."
  - Taxpayer rights are not embodied in law; a "broad statement of taxpayer rights is posted on the RRA website http://www.rra.gov.rw and in RRA offices."
- Civil service ethics and anticorruption:
  - No general code of behavior for civil servants has been prepared; most civil service contracts lack explicit ethics provisions.
  - RRA issued a Code of Staff Conduct and Disciplinary Procedures in June 2001, including asset declaration requirements.
  - No formal anticorruption program or legislation exists despite government discussions.
- Public disclosure of fiscal data:
  - Budget documents presented to parliament cover most central government fiscal activities but "do not provide revenues and expenditures of general government."
  - PRSP is publicly available; the Minister’s budget speech is published on MINECOFIN’s website.
  - Published material excludes autonomous agencies’ expenditures and district budgets (even in aggregate).
  - Since 2003 annexes include "off-budget revenues" but there is no discussion of the evolution of aggregate debt.
  - Defense example: in 2001, "expenditures from the Ministry of Defense’s foreign exchange account at the BNR amounted to about 13 percent of its total budgeted expenditure."
  - Contingent liabilities information is not reported; MINECOFIN maintains data on loan guarantees but other explicit contingent liabilities are not systematically monitored. Implicit contingent liabilities from decentralization exist and central government control is limited.
  - Estimates of tax expenditures and quasi-fiscal activities are not published; MINECOFIN maintains a database of tax expenditure estimates by legal basis.
  - Information on gross public debt and government assets is not published despite authorities maintaining comprehensive gross public debt information; neither external nor domestic debt data are published.

### Budget preparation, MTBF, and disclosure of fiscal risks
- Budget preparation and classifications:
  - Budget circular establishes expenditure ceilings for ministries and provinces based on a medium-term macroeconomic framework; a program classification since 2000 identifies priority and nonpriority programs consistent with PRSP priorities.
  - Annexes to annual budget law show revenues by economic classification and expenditures by administrative, program/subprogram, economic, and functional classifications, but information is "not sufficient to assess" program performance consistency.
- Recurrent vs development budgets:
  - Recurrent and development budgets are not integrated; development budget shows programs/subprograms, donor, and type of funding; coverage is complete for loan-financed projects but some grant-financed (notably NGO-financed) projects are excluded.
  - Budget Department coordinates recurrent budget; CEPEX coordinates development budget; "Separate databases are maintained."
- Fiscal indicators and MTBF practice:
  - Domestic balance and overall central government balance are main fiscal indicators; general government overall balance "is not monitored" due to inadequate district reporting; overall public sector balance "is not examined."
  - MTBF prepared, but second-year projections do not automatically become the first year of the next MTBF because of revenue/grant volatility, absence of formal planning contingency reserves, and high fixed costs reducing flexibility.
  - The initial expenditure ceilings were overridden by 10 percent in preparing the 2003 budget; the annual contingency reserve is "very small."
- Fiscal risk disclosure:
  - Main fiscal risks are not fully disclosed in budget documentation; discussions are limited to potential shortfalls in domestic revenues and donor assistance, with no comprehensive sensitivity analysis.

### Accounting, internal control, audit, procurement, and reconciliation
- Expenditure control and SIBET:
  - Every expenditure commitment requires a priori "visa" by the Budget Department; the Treasury exercises a second control after receipt of goods/services.
  - Quarterly cash limits implemented in 2001 appear to have brought expenditure arrears under control.
  - Expenditure process computerized in the "SIBET" system with online links to central ministries; provincial links being established.
- Internal audit and IGA:
  - Internal audit units in spending ministries are generally "only one person" and focus on pre-audit for a priori controls rather than full internal audit functions.
  - MINECOFIN internal audit unit and the Inspectorate Générale et Audit (IGA) can audit any public entity and report to the Minister, with overlap with the Office of the Auditor General (OAG).
  - A draft Manual of Financial Management Procedures was developed in 2002 with OAG help; it "does not include reference to the SIBET system."
- External audit and parliamentary oversight:
  - Law No. 05/98 established the OAG in 1998; the OAG delivered audits to the President (subject to cabinet approval) with no obligation to publish. The 2003 Constitution reorients external audit to serve parliament.
  - In 2002 the OAG audited 34 public sector entities; audits were submitted to top officials and reviewed by the parliamentary budget committee but not made available to all parliamentarians and the public.
  - The legislature has not systematically followed up on external audit reports; enforcement mechanisms for AG recommendations are undeveloped.
  - A consolidated set of accounts for central government has not been audited for over a decade; consolidated accounts were last formally verified by the Court of Accounts in 1989.
- Accounting systems and reconciliations:
  - The accounting system is not comprehensive or integrated; public accounts department was split from Treasury in 2001.
  - SIBET extension to include an accounting module had "not been done" as of early 2003.
  - Two charts of accounts exist: one for central government (nine classes typical of francophone countries) and a simplified accounting system for local governments (anglophone framework). Harmonized double-entry accounting not yet operational.
  - Government bank accounts reconciliation gaps:
    - Regular reconciliation of all government bank accounts is not done.
    - At end-2001 there were "nearly 1,500 government bank accounts" in Rwf and foreign currency; about half at BNR and others in commercial banks.
    - Ministries and public bodies are in principle prohibited from opening private bank accounts without Minister of Finance authorization, but some accounts were opened without authority.
    - Main treasury account ("the so-called OTR account") is regularly reconciled; the three main revenue transit accounts are not reconciled regularly though Treasury planned to do so in early 2003.
    - Other accounts (dormant, project, ministries’, provinces’, autonomous agencies’) are not reconciled regularly.
  - Recording practice weakness: transfers to ministries’ and provinces’ bank accounts are recorded as expenditures when transferred from OTR, before payments to nongovernmental entities occur—undermining monthly flash report quality.

### Data reliability, fiscal monitoring, and publication practices
- Basis and timeliness of fiscal data:
  - Accounting is essentially cash-based; statements of accounting policy are not included in the budget.
  - SIBET records expenditures at commitment, payment order, and cash payment stages; in principle no end-year carryover for unpaid commitments, but in practice unexecuted payment orders at year-end can be substantial.
  - Financial regulations set expenditure commitment closure on "November 15" and payment order issuance on "December 15"; unpaid prior-year bills to be paid from the arrears allocation of the new budget year.
- Reliability of projections and outcomes:
  - Data generally reliable for revenues and recurrent spending; earlier revenue overestimation tendencies have diminished and tax revenues "have even exceeded budget projections recently."
  - Development budget projections are a poor guide to actual disbursements and generally fall well below budget projections due to foreign financing delays and weak implementation capacity.
  - Without full financial accounts, parliament cannot receive full explanations for divergences between budgets and outcomes.
- Publication practices:
  - Fiscal data published on MINECOFIN website; beginning at "end-October 2002" quarterly budget execution data began to be published with an aim of one month lag.
  - No formal commitments for regular publication schedules and advance release calendars; existing laws do not set reporting requirements—OBL expected to do so.
  - Rwanda is "not yet meeting the IMF’s general data dissemination standards."

### IMF staff assessment: progress, priorities, and concrete recommendations
- Progress noted by IMF staff:
  - Clarification of state role and transparent privatization since mid-1990s.
  - Annual budget adopted by parliament since 1998; from 2000 budget classification improved and aligned with international standards.
  - Introduction of medium-term expenditure projections and greater public availability of PRSP, budget speech, quarterly execution reports, and background documents.
  - 2003 Constitution restricts parliament from introducing revenue-reducing or expenditure-raising measures without offsets, enhancing fiscal discipline.
- Staff priority:
  - Provide timely, comprehensive, and high-quality fiscal data; strengthen expenditure control mechanisms and internal/external audit; "get basics right first" before moving to accrual accounting or output-oriented budgeting.
- Specific accounting and financial management recommendations:
  - Decide on the accounting system best suited to Rwanda given devolved execution and accounting responsibilities.
  - Adopt a simplified chart of accounts for central and local governments.
  - Use ledger accounts for each transaction to trace public monies and support external audit.
  - Introduce computerized accounting within an integrated financial management information system; extend SIBET to all provinces and use it for expenditure control.
  - Defer reporting the value of nonfinancial assets for the present.
  - Strengthen the Public Accounts Department, enhance accounting personnel skills, and ensure competitive remuneration; recruit and train accountants.
- Bank accounts, reconciliation, and reporting recommendations:
  - Rationalize government bank accounts: nearly 1,500 accounts in 2002 are excessive.
  - Continue closing dormant accounts and strengthen treasury oversight; channel more payments through the main treasury account—close ministries’ and provinces’ imprest accounts and replace with ledger accounts; payments to be made directly from the OTR account at BNR.
  - Interim practice: do not record transfers to imprest accounts as expenditures prior to imprest closure.
  - Progressively incorporate central government entities into a treasury single account arrangement to facilitate reconciliation.
  - Broaden public dissemination: publish basic public debt data immediately; subsequently report contingent liabilities and tax expenditure estimates; longer term report all government assets and identify/report quasi-fiscal activities to parliament.
- Internal audit, inspectorate, and local government financial management:
  - Reorient internal audit units from pre-audit to assessing management system effectiveness and enforcing centrally issued procedures.
  - Reorient IGA to develop guidelines/procedures for internal audit, train/supervise internal audit staff; define IGA role at district level; consider leaving public enterprise inspections to AG or external auditors.
  - Harmonize local government financial management with central systems; clarify MINALOC vs MINECOFIN responsibilities for nationwide fiscal reporting.
  - Subject districts’ borrowing to firm ministerial control; donors assisting districts to improve budgeting and management.
- Parliamentary role, legal framework, and transparency reforms:
  - Clarify the role of the senate in the budget process and adopt organic laws specifying internal regulations, committee structures, and dispute-resolution mechanisms between chambers.
  - Enact the Organic Budget Law (OBL) and modify the 1998 OAG Act: OBL should specify powers of the Minister of Finance and establish accountability provisions; OBL should authorize the minister to issue financial regulations, chart of accounts, and implementation procedures.
  - Revise the 1998 Law to require publication of the AG’s report and modify appointment/reporting arrangements so the AG is appointed by parliament and reports to parliament.
- Oversight capacity, reporting, and budget preparation refinements:
  - Strengthen OAG and parliamentary committees’ capacity to audit ministries and follow up on AG reports; provide fuller information to parliament including explanations of deviations and integrated recurrent/development budget outcomes.
  - Introduce a planning contingency in budget preparation (example suggested: exclude a fixed amount, e.g., 2 percent of total expenditures, from initial spending ceilings to allocate for urgent unforeseen needs).
  - Gradually move toward performance accounting with realistic, capacity-aware development of performance indicators.

*Source: IMF staff draft assessment of fiscal transparency practices in Rwanda (text as provided).*

### 1.      This draft report provides an assessment of fiscal transparency practices in Rwanda

### _cr03223 - 1.      This draft report provides an assessment of fiscal transparency practices in Rwanda

### Overview
- The assessment follows the IMF Code of Good Practices on Fiscal Transparency and has two parts: (i) a description of practice prepared by IMF staff based on discussions with the authorities and their questionnaire responses and other available information; and (ii) IMF staff commentary on fiscal transparency in Rwanda.

### Coverage of central government and general government
- Central government budget coverage:
  - Excludes the pension fund (Caisse Sociale Rwandaise, CSR).
  - For 2003, central government budget "Votes" included: parliament, the presidency, the Prime Minister’s Office, 15 ministries, 11 provinces, and the city of Kigali.
  - Central government provides transfers to districts via MINALOC and to central government autonomous agencies (établissements publics) such as the National University of Rwanda (NUR), other higher education institutes, Offices and Commissions, and hospitals/clinics.
  - Revenues from fees of établissements publics are not included in the budget. Direct donor support to établissements publics (e.g., to the NUR) is not included. Revenues retained by ministries are not captured.
  - The CSR is not included in the central government budget; CSR provides information to MINECOFIN annually.
- General government definition:
  - General government (IMF GFS) is larger than central government. In Rwanda, general government is composed of central government and 106 districts.
- Special funds:
  - Four special funds are partly included in the central government budget (see paragraph 5).

### Decentralization, district budgets, and local revenues
- Legal and institutional arrangements:
  - Laws establishing provinces, districts, urban authorities, and the city of Kigali were adopted in 2000 and 2001.
  - The 11 provinces are arms of central government, administered by provincial governors (préfets) appointed by the President.
  - Elected Councils of the 106 rural and urban districts are envisaged to prepare and execute their own budgets under decentralization policy.
  - Urban districts contain 1,544 sectors and 9,175 cells.
  - District expenditure assignments in law include primary and secondary education, health centers, agricultural and forestry activities, road and water networks of the district.
  - Devolvement of responsibility from central to district/town governments is evolving progressively.
- Budgetary consolidation and transfers:
  - District budgets are not consolidated at central level.
  - District domestically generated revenues mainly from fees, property taxes, and taxes on rental income.
  - Two funds created in 2002 to supplement district revenues:
    - Equalization Fund: earmarks 1.5 percent of central government revenues for districts’ recurrent budgets.
    - Common Development Fund: planned to allocate 10 percent of central government revenues to districts’ development budgets.
  - In 2003, allocations were less than these percentages due to lack of sufficient qualifying projects, low administrative capacity of local government units, and lack of a functioning reporting and control system.
  - Revenues raised by districts are not reported to the central government on a regular basis. Direct donor financing of districts exists (at least one bilateral donor provides substantial resources directly to districts outside the government’s budget).

### Off-budget activities, special funds, and external resources
- Not all central government spending is included in the annual budget:
  - Road Fund and Fund for the Victims of the Genocide (FARG) established by law. All Road Fund revenues/expenditures are included in the state budget; for FARG, donor-provided resources are not captured in the budget.
  - Expenditures from own revenues of établissements publics and from donor resources occur outside the budget. For 2003, such revenues, including grants, amounted to 5–6 percent of domestic revenues, with the largest being for a Kigali hospital and various higher-learning institutes.
  - Spending from ministries’ and provinces’ bank accounts is replenished by transfers from the central treasury account; the Treasury records the transfers as "spending" and does not monitor such spending, affecting timing and classification of disbursements more than their size.

### Privatization and government equity holdings
- Privatization process:
  - A privatization secretariat was established in 1996.
  - Of 72 state-owned enterprises slated for privatization in 1997, by end-2002, 43 had been sold (mostly smaller or medium-sized firms).
  - In 2003, privatization of some larger firms, including utilities (telephone, electricity, and gas) and tea companies, was to take place.
  - Process: financial audit → widely publicized invitations for tenders → evaluation and recommendations by interministerial technical committee → cabinet decision. Decisions to retain minority shares made on a case by case basis and sale details are publicly available.
  - Privatization receipts net of restructuring costs are held in a separate BNR account; they are not regarded as budget revenues since no formal policy exists on their use. Privatization receipts are included in budget reporting despite uncertainties on size and timing.
- Government equity holdings:
  - Government equity holdings are not reported in the budget documents, though MINECOFIN maintains information on actual equity holdings.
  - Government retained minority shareholdings in a number of nonfinancial enterprises that completed privatization and has considerable minority share-holdings in commercial banks.

### Financial sector risks and contingent liabilities
- Government ownership in banks and fiscal risks:
  - Government shareholdings in commercial banks (as reported):
    - 49.4 percent share in the Banque Commerciale du Rwanda.
    - 50 percent share in the Banque du Kigali (including ownership by government-owned entities).
    - 4 percent share in the Banque Continentale Africaine du Rwanda.
    - 47 percent direct stake in the Banque Rwandaise du Developpement (also partly owned by government-owned enterprises or banks).
  - Bank regulation is by the central bank, BNR (Law No. 26/06/99).
  - Commercial banks’ balance sheets are fragile:
    - Nonperforming loans amounting to 30–40 percent of their portfolios.
    - Most banks not meeting capital adequacy requirements.
  - A restructuring process was beginning in 2003. The 2003 budget allocated the equivalent of 0.6 percent of GDP for restructuring, with the risk this amount may prove inadequate.
  - Eventual privatization of commercial banks is envisaged.
- Quasi-fiscal activities:
  - Privatization has reduced public nonfinancial corporations and legislation has reinforced the distinction between government activities and nonfinancial public enterprises, reducing scope for quasi-fiscal activities.
  - Some quasi-fiscal activities continue; government intervention by ministerial decree is restricted largely to price-setting for a limited set of sensitive goods and services and management of strategic petroleum and food stocks.
  - Cost-recovery pricing for utilities is the principle, but actual prices for electricity, gas, and water are inadequate to place utility companies in a strong financial position.
  - Electrogaz’s management was contracted out to the private sector in 2003.

### Central bank independence and coordination with MINECOFIN
- Institutional and operational status of the BNR:
  - The BNR has day-to-day operational independence for implementing monetary policy and does not carry out quasi-fiscal activities.
  - The BNR is not institutionally independent; it is an autonomous agency under MINECOFIN. The Act establishing the BNR specifies it has the role of "advising the government on the definition and conduct of economic and financial policy."
  - The government appoints the Governor and all Board members; the Minister of Finance appoints the Committee of Auditors that supervises the BNR. Despite these appointment powers, the BNR appears to establish monetary policies with considerable independence.
- Formal relationships and facilities:
  - BNR Law establishes coordination basis between BNR and MINECOFIN:
    - Government overdraft facility at BNR: may borrow up to 240 days an amount equivalent to 11 percent of previous years’ domestic revenues; BNR charges market-based interest on overdrafts.
    - BNR does not pay interest on cash balances.
    - BNR acts as government’s agent for issuing treasury securities.
    - Residual of net profits transferred to the main treasury account after fiscal year close: 20 percent of BNR net profits allocated to a general reserve fund and a further portion at the Board’s discretion dedicated to special reserves.
  - Coordination between BNR and MINECOFIN for monetary/fiscal policy requires more frequent collaboration on short-term projections of net credit to government (from the banking system) and government imports.

### Legal, institutional, and budget management framework
- Constitution and parliamentary roles:
  - New constitution adopted by referendum in May 2003 specifying main roles of executive, legislative, and judicial branches; previous framework was the 1991 Constitution and the Fundamental Law of August 1993.
  - A multiparty system is envisaged; elections expected later in 2003.
  - Legislature to consist of two chambers; senate formed by appointments or indirect elections. The role of parliamentary committees and internal rules relevant to budget process depend on organic laws yet to be adopted.
  - The constitution does not explicitly state the senate approves the annual budget; the senate is required to provide an opinion on the annual budget to the President of the Chamber of Deputies.
  - Executive: elected president appoints a prime minister and cabinet ministers.
- Parliamentary powers over the budget:
  - Parliament may modify the executive’s draft budget but cannot change the overall fiscal deficit. If amendments reduce government revenue or increase state expenditures, they must indicate accompanying proposals for raising required revenues or making equivalent savings.
- Budget legal framework and reforms:
  - In early 2003, main legal basis for budget process was the 1979 Decree Law on the Budget and Public Accounting (confirmed by Law No. 01/82 of 1982), with some unclear provisions incorporated into recent annual budget laws.
  - In mid-2003, government was developing a new legal and regulatory framework for fiscal management. An Organic Budget Law (OBL) was being drafted as required by the 2003 Constitution.
  - The OBL will include practices such as preparation of a medium-term budget framework (MTBF), which had already been developed without a formal legal framework.
  - Modifications to the 1998 external audit law were to be drafted in 2003.
  - Once new laws are adopted, new financial regulations and accounting instructions are needed to clarify financial management; current financial management regulations for central and local governments are unclear or inconsistent, preventing derivation of nation-wide government accounts.
- Institutional arrangements and agencies:
  - MINECOFIN (formed from merger of Ministry of Finance and Ministry of Planning in 1997) is responsible for managing the budget and finances.
  - Key MINECOFIN divisions include: budget department (recurrent budget preparation, authorization of commitments, and cash planning); treasury department (authorization of payments, management of government bank accounts); public accounts department (maintaining public accounts, collecting nontax revenues).
  - A semi-autonomous agency, CEPEX (Central Projects and External Finance Bureau), formed from the Investment Directorate, handles preparation and monitoring of development budget.
  - Rwanda Revenue Authority (RRA), an autonomous agency established by law in 1997, collects all major taxes but not nontax revenues. A decision has been made to transfer responsibility for collecting nontax revenues to the RRA; the public accounting department inherited this role following the splitting of this department from the Treasury.
  - Responsibilities and accountabilities under the legal and organizational arrangement prevailing in early 2003 were unclear on both the expenditure and tax sides.

### Tax laws, exemptions, and investment incentives
- Legal basis and clarity:
  - Constitution states no taxation can be imposed, modified or removed except by law and no exemption or reduction may be granted unless authorized by law. Major taxes and procedures are based on specific laws that are readily accessible.
  - Main tax laws include:
    - Law No. 08/97 Direct Taxes on Different Profits and Professional Income (June 1997) as amended;
    - Law No. 06/01 Law on the Value-Added Tax (June 2001);
    - excise tax laws;
    - Law No. 07/98 Duties on Imported Products (August 1998) as amended;
    - Law No. 09/97 Code for Fiscal Procedures.
  - VAT Law (2001) is clear and supported by administrative documentation; income tax law is not always clear.
  - Absence of national accounting standards complicates determination of taxable profit.
  - Adoption of three official languages (Kinyarwanda, English, and French) makes interpretation of tax laws difficult; all laws presented to parliament are in these three languages.
  - Administrative application criteria for some tax laws have become clearer since RRA establishment, but practical application remains uncertain.
- Investment code and discretionary tax advantages:
  - Law No. 14/98 establishing the Rwanda Investment Promotion Agency (RIPA) provides tax incentives and discretion in according tax advantages to investors or specific beneficiaries (e.g., NGOs for duty-free importations).
  - Tax incentives are administered by RIPA; some scope remains for discretion in determining eligibility for incentives, including which businesses can operate in duty-free zones.
  - The Minister with jurisdiction over commerce and industry has considerable powers under the RIPA Act, weakening the Minister responsible for finance’s ability to oppose new tax concessions under the RIPA Act.

*Source: IMF staff draft assessment of fiscal transparency practices in Rwanda (text as provided).*

### 19.      While it has no formal legal protection, it was indicated that the government has

### _cr03223 - 19.      While it has no formal legal protection, it was indicated that the government has

### Tax administration independence and taxpayer rights
- The RRA is financed from the central government budget but "has been granted considerable independence in its operations and maintains a separate salary structure subject to the approval of the RRA’s Board of Directors."
- The government "has not interfered with the operation of the national tax administration."
- Taxpayer rights are not embodied in law; a "broad statement of taxpayer rights is posted on the RRA website http://www.rra.gov.rw and in RRA offices."

### Civil service ethics, asset declarations, and anticorruption framework
- A code of behavior applicable to all civil servants "has not been prepared."
- "In most civil service employment contracts, there are no explicit provisions relating to ethics."
- RRA-specific measure: "A Code of Staff Conduct and Disciplinary Procedures was issued in June 2001," which "includes a requirement to declare asset holdings."
- No formal anticorruption program or legislation exists despite government discussions of a national program for good governance.

### Public availability of fiscal information
- Budget documents presented to parliament cover most central government fiscal activities but "do not provide revenues and expenditures of general government."
- The budget is set in the context of the Poverty Reduction Strategy Paper (PRSP), a "publicly available document."
- The budget speech by the Minister of Economic Planning and Finance is published on the MINECOFIN’s website.
- Published material excludes details of expenditures by autonomous agencies and the budgets of lower levels of autonomous governments, notably the "106 districts (even in aggregate form)."
- Since 2003, annexes include "off-budget revenues," but "there is, however, no discussion of the evolution of aggregate debt—a key indicator for medium-term fiscal analysis."
- Defense: in 2001, "expenditures from the Ministry of Defense’s foreign exchange account at the BNR amounted to about 13 percent of its total budgeted expenditure."
- Contingent liabilities:
  - "Information on contingent liabilities is not reported."
  - MINECOFIN maintains information on loan guarantees granted by the central government.
  - Other explicit contingent liabilities (indemnities or legal payments) "are not monitored systematically."
  - Implicit contingent liabilities associated with decentralization exist; "central government financial assistance may be required should a district default on its borrowing." MINECOFIN "has very little control in this area."
- Tax expenditures and quasi-fiscal activities:
  - "Estimates of tax expenditures and quasi-fiscal activities are not published."
  - MINECOFIN has established a database including estimates of tax expenditures from import duties, excises, and the VAT, tracking the legal basis for each exemption.
  - Quasi-fiscal activities "do not appear to be extensive."
- Public debt and assets:
  - "Information on gross public debt and government assets is not published."
  - Authorities maintain comprehensive information on gross public debt, but "neither external nor domestic debt data are published."
  - No viable public accounting system; "complete information on government financial assets is not available."
  - An inventory of selected nonfinancial assets was being conducted in 2003; "asset valuation issues will not be addressed in the immediate future."
- Fiscal data publication:
  - "Fiscal data are now published on the MINECOFIN website."
  - Beginning at "end-October 2002, the authorities began publishing quarterly data on budget execution, the aim being to publish such data with one month’s lag."
  - "There are no formal commitments for regular publication of fiscal data and advance release date calendars are not announced."
  - Existing laws do not set out reporting requirements; the new OBL, once adopted, is expected to lay out fiscal reporting requirements.
  - Rwanda is "not yet meeting the IMF’s general data dissemination standards."

### Budget preparation, medium-term framework, and fiscal risks
- Budget preparation:
  - Guided by a budget circular establishing expenditure ceilings for ministries and provinces, based on a medium-term macroeconomic framework.
  - A program classification adopted since 2000 allows identification of priority and nonpriority budget programs consistent with PRSP sectoral priorities.
  - Annexes to the annual budget law show revenues by economic classification and expenditures by administrative, program/subprogram, economic, and functional classifications.
  - Present information is "not sufficient to assess the extent to which performance is consistent with stated policy objectives."
- Recurrent vs development budgets:
  - "The recurrent and development budgets are not integrated," though steps toward integration have been taken.
  - Development budget now shows programs/subprograms, donor, and type of funding (domestic budget, loan, grant); coverage is complete for loan-financed projects but some grant-financed projects (especially those financed by NGOs) are excluded.
  - The Budget Department coordinates recurrent budget; CEPEX coordinates the development budget. "Separate databases are maintained."
- Fiscal indicators monitored:
  - "The domestic balance and the overall balance of central government are the main indicators of the fiscal position."
  - The general government overall balance "is not monitored" due to inadequate reporting of districts’ budget execution.
  - The overall public sector balance "is not examined."
- Medium-term projections:
  - Prepared in the context of the MTBF, but "second-year projections do not automatically become the first year of the new MTBF twelve months later" because:
    - "(i) revenues, especially grants, and/or the macroframework for the first year, may deviate considerably from initial assumptions;"
    - "(ii) the medium-term expenditure projections do not include a formal planning contingency reserve;"
    - "(iii) fixed costs are very high, thereby reducing flexibility for changing nonpriority expenditures and remaining within overall ceilings."
  - PRSP-detailed priority programs result in rigidity for most goods and service spending; "Government salaries and employment are determined centrally and cannot be changed easily."
- Policy changes and adherence to ceilings:
  - New policies are described in the MTBF paper and ministries prepare mission statements and strategic overviews.
  - Despite procedures, "other new policies have been introduced late in the budget cycle" and "the initial expenditure ceilings were overridden by 10 percent" in preparing the 2003 budget.
- Fiscal risk disclosure:
  - "The main fiscal risks are not fully disclosed in the budget documentation."
  - Discussions limited to potential shortfall of domestic revenues and donor assistance; no comprehensive sensitivity analyses.
  - The annual budget’s contingency reserve is "very small."

### Internal controls, audit, procurement, and accounting systems
- Expenditure control and SIBET:
  - Every expenditure commitment requires a priori control ("a 'visa'") by the Budget Department of MINECOFIN; a second control is exercised by the Treasury after receipt of goods and services.
  - Payment is generally made by the BNR from the Treasury’s main account.
  - Implementation of quarterly cash limits in 2001 "appears to have brought expenditure arrears under control."
  - The expenditure process has been computerized in the "SIBET" system with online links to central government ministries in Kigali and provincial links being established.
- Internal audit:
  - Internal audit units in spending ministries are generally "only one person" and focus on pre-audit of documentation for a priori controls rather than typical internal audit functions.
  - MINECOFIN has an internal audit unit and a high-level office for Inspection Générale et Audit (IGA) mandated to audit any public entity and report to the Minister of Economic Planning and Finance; its work "appears to be largely overlapping with that of the external audit body, the Office of the Auditor General (OAG)."
  - With OAG help, a draft Manual of Financial Management Procedures for central government was developed in 2002; it "does not include reference to the SIBET system."
- Procurement and National Tender Board (NTB):
  - "The National Tender Board (NTB) has been operating since 1998."
  - The legal framework including procurement regulations was submitted to parliament for consideration in early 2003.
  - NTB has been operating under a presidential decree and "has issued and implemented procurement guidelines consistent with international standards."
  - NTB oversees tendering of larger procurement contracts and assists ministries, autonomous agencies, provinces, and districts in procurement capacity building.
- Accounting systems and harmonization:
  - "The accounting system is neither comprehensive nor integrated."
  - Department of Public Accounts was split from the Treasury Department in 2001; public accountants placed in all line ministries and provinces.
  - SIBET extension to include an accounting module had "not been done" as of early 2003.
  - Two different charts of accounts drafted: one for central government (based on nine classes of accounts typical in francophone countries) and a simplified accounting system for local governments (based on anglophone frameworks).
  - Until a harmonized double-entry accounting system is operational, "a reliable basis for assessing payment arrears cannot be provided."
- Fiscal monitoring and reporting timeliness:
  - Fiscal situation monitored by monthly "flash reporting" compiled from multiple sources rather than a comprehensive double-entry accounting system.
  - Major shortcoming: periodicity and timeliness of development budget expenditures financed by donors; project managers and/or donors "fail to provide timely and comprehensive information on actual disbursements."
  - Recurrent and development budgets handled by separate units and reporting systems "have not been synchronized." Actual expenditures by provinces "are also not captured in the accounting system—only transfers to provinces."
- Mid-year review and supplementary budget:
  - A mid-year examination may lead to modifications; timing of the supplementary budget is variable and typically "presented toward year-end" and tends "to legitimize virements in actual expenditures."
  - Present legislation does not require a formal mid-year report to parliament.
- External audit and consolidated accounts:
  - "A consolidated set of accounts for central government has not been audited for over a decade."
  - Consolidated accounts were last formally verified by the Court of Accounts in 1989.
  - Final accounts for 1999 were prepared and submitted to the Court of Accounts but "were not presented to the legislature."
  - The Auditor General has conducted audits of a number of ministries, agencies, and public enterprises but has been "thwarted" in auditing consolidated annual accounts of central government.

### Assurances of integrity, reliability of projections, and bank account reconciliation
- Accounting basis and year-end treatment:
  - "Statements of accounting policy are not included in the budget."
  - The accounting system is "essentially cash-based."
  - SIBET records expenditures at each step (commitment, payment order, and cash payment). In principle, "there is no end-year carryover for unpaid commitments or outstanding payment orders."
  - In practice, "unexecuted payment orders at year-end can be substantial," partly due to forecasting difficulties.
  - Financial regulations state expenditure commitments are to be closed on "November 15" and payment order issuance on "December 15."
  - Financial regulations require unpaid bills relating to a previous year to be paid out of the arrears allocation of the new budget year.
- Reliability of data underpinning budget projections:
  - Data are "generally reliable for revenues and recurrent spending."
  - Earlier tendencies to overestimate budgeted revenues have diminished; tax revenues "have even exceeded budget projections recently."
  - Current expenditure outcomes "have generally been broadly in line with budget projections."
  - Development budget projections are "a poor guide to actual disbursements," which "generally fall well below budget projections" due to delays in disbursement of foreign financing and weak implementation capacity.
  - Without full financial accounts, parliament cannot be provided full explanations for divergences between budgets and outcomes.
- Government bank accounts and reconciliation:
  - "Regular reconciliation of all government bank accounts is not done," causing discrepancies between monetary accounts and fiscal accounts.
  - At end-2001, "the nearly 1,500 government bank accounts" were maintained in Rwanda francs and foreign currency; about half were held at the BNR and the others were in commercial banks.
  - In principle, ministries and public bodies are prohibited from opening bank accounts in private banks without authorization from the Minister of Finance, but some accounts have been opened without authority.
  - The main treasury account ("the so-called OTR account") is used for major transactions and "is regularly reconciled with accounting records."
  - The three main revenue accounts—transit accounts of the RRA prior to transfer into the OTR account—"are not reconciled regularly," though in early 2003 the Treasury was planning to do so.
  - None of the other accounts (dormant accounts, many active project accounts, ministries’ accounts, provinces’ accounts, autonomous public agencies’ accounts) "are reconciled with accounting data on a regular basis."

*Source: _cr03223 - 19.      While it has no formal legal protection, it was indicated that the government has*

### 45.      The quality of expenditures recorded in monthly flash reports is undermined by

### _cr03223 - 45.      The quality of expenditures recorded in monthly flash reports is undermined by

### Weaknesses in accounting and expenditure reporting
- Recording practice: Transfers to ministries’ and provinces’ bank accounts (used to pay for expenditures such as mission travel, electricity) are recorded by the Public Accounting Department as expenditures when the transfer from the Treasury’s OTR account is made, before payment to a nongovernmental entity has taken place.
- Institutional fragmentation: Splitting of the Treasury and Public Accounting Departments within MINECOFIN is viewed as not necessarily helpful for consolidating the accounting function.
- Timeliness and auditability: A consolidated annual report of government financial transactions has not been audited since the Court of Accounts’ report covering 1989.
- Computerization progress: The computerization of expenditures, from appropriation to payment, has improved availability of expenditure data, but coverage and quality remain problematic.

### External audit, OAG, and parliamentary oversight
- Legal and institutional status:
  - The 1991 Constitution endorsed the Court of Accounts under the judiciary; Law No. 05/98 established the OAG in 1998.
  - The 1998 OAG law calls for the AG to deliver an annual report to the President (subject to cabinet approval) with no obligation to publish the report.
  - The 2003 Constitution reorients the external audit function to serve parliament; parliament is to become the primary recipient of the OAG’s annual report.
- Capacity and practices:
  - Since 1998 the OAG has been strengthened and audited several individual agencies.
  - In 2002, the OAG audited 34 public sector entities, including 10 ministries and 13 projects.
  - Audits in 2002 were submitted to the President of the Republic, the Speaker of the National Assembly, and the Chief Justice of the Supreme Court; reports were reviewed by the parliamentary budget committee but were not made available to all parliamentarians and the public.
- Gaps in external scrutiny:
  - The legislature has not been called upon to follow up on external audit reports in a systematic way.
  - The constitution obliges public officials to implement AG recommendations but mechanisms for enforcement are undeveloped.
  - The constitution does not explicitly state that the OAG’s annual report must be published.

### National statistics and fiscal data quality
- Institutional status:
  - The national statistics agency is not institutionally independent and remains part of MINECOFIN (Statistics Department prepares most statistical information).
  - In 2002 the department prepared a strategic plan for the development of a national statistical system; the plan notes the absence of a formal legal framework and lack of financial autonomy.
- Data limitations:
  - Background papers for the budget describe broad assumptions but underlying assumptions and behavioral relationships for aggregate projections are not made available to parliament.
  - Most expenditures are budgeted on an incremental basis without explicit assumptions for various programs.
  - Donor-financed expenditures and development budget information are incomplete; decentralization will exacerbate this unless addressed.
- Reporting gaps:
  - Need to report all revenues, expenditures, and indebtedness of ministries, provinces, autonomous agencies, and districts, including balance sheets for autonomous agencies.

### IMF staff assessment: progress and remaining priorities
- Progress made:
  - State role clarified since mid-1990s; privatization done transparently.
  - Since 1998 an annual budget has been adopted by parliament; from 2000 budget classification improved and expanded in line with international standards.
  - Medium-term expenditure projections introduced, enabling three-year resource-consistent planning.
  - Greater public availability of documents: PRSP, Minister of Finance’s budget speech, quarterly budget execution reports, and a background document accompanying the annual budget law.
  - The 2003 Constitution restricts parliament from introducing revenue-reducing or expenditure-raising measures unless offsetting measures are included—seen as enhancing fiscal discipline.
- Staff priority: Provide timely, comprehensive, and high-quality fiscal data; strengthen expenditure control mechanisms and internal/external audit; “get basics right first” before moving to accrual accounting or output-oriented budgeting.

### Specific accounting and financial management recommendations (from staff)
- Decide on the type of accounting system best suited to Rwanda’s needs, given increasing transfer of budget execution and accounting responsibilities to spending ministries, provinces, and districts.
- Adopt a simplified chart of accounts for use in both central and local governments.
- Use ledger accounts for each transaction to allow tracing of public monies and provide a basis for external audit of annual accounts.
- Introduce computerized accounting within an integrated financial management information system; extend the SIBET system to all provinces and use it as a tool for expenditure control.
- Defer reporting the value of nonfinancial assets for the present time.
- Strengthen the Public Accounts Department to exercise strong oversight responsibility, enhance accounting personnel skills, and set/maintain accounting standards.
- Recruit and train accountants, ensuring that remuneration is competitive.

### Recommendations on bank accounts, reconciliation, and data coverage
- Rationalize government bank accounts: In 2002, there were nearly 1,500 government bank accounts—considered excessive for a small country.
- Continue closing dormant accounts and strengthen treasury oversight of all bank accounts.
- Channel more payments through the main treasury account: ministries’ and provinces’ imprest accounts in banks should be closed and replaced by ledger accounts, with payments made directly from the OTR account at the BNR.
- Interim recording practice: Even prior to closing imprest accounts, transfers to imprest accounts should not be recorded as expenditures.
- Envisage progressive incorporation of central government entities into a treasury single account arrangement to facilitate reconciliation of banking and accounting data.
- Broaden public dissemination: Publish basic public debt data more widely immediately, and subsequently report contingent liabilities and estimates of tax expenditures. Reporting of all government assets and identification/reporting of quasi-fiscal activities to parliament should be longer-term objectives.

### Internal audit, inspectorate, and local government financial management
- Strengthen internal audit units in spending ministries and provinces by:
  - Reorienting focus from internal compliance control to internal audit assessing effectiveness of management systems.
  - Ensuring internal auditors enforce centrally issued financial management and accounting procedures, including reporting obligations.
- Reorient the Inspectorate General of Administration (IGA) toward developing guidelines and procedures for internal audit; train, inspect, and supervise internal audit staff in spending ministries and provinces.
- Define IGA role in district-level internal audit; consider leaving inspections of public enterprises to the AG or enterprises’ external auditors.
- Harmonize local government financial management systems with central government systems; clarify MINALOC and MINECOFIN responsibilities for nationwide fiscal reporting.
- Subject districts’ borrowing to firm control by the minister of finance.
- Donor support: Donors are assisting districts to improve budget preparation and management.

### Parliamentary role, legal framework, and transparency
- Clarify parliamentary procedures:
  - Specify the role of the senate in the budget process and coordination mechanisms with the Chamber of Deputies (Article 88 and Article 73 of the constitution referenced).
  - Chambers should quickly adopt organic laws establishing internal regulations to specify powers of the Bureau and committee structures; specify mechanisms for resolving disputes between chambers over the budget.
- Enact a new Organic Budget Law (OBL) and modify the 1998 Act establishing the AGO:
  - OBL should specify powers of the Minister of Finance and establish clear accountability provisions for key budgetary actors.
  - Clarify roles of ministers (policy decisions) and secretary generals (implementation and ensuring effective accounting in ministries).
- Financial regulations and accounting instructions:
  - OBL should authorize the minister of finance to issue clear financial regulations governing budget execution, accounting, internal control, and reporting.
  - The public accounting framework, chart of accounts, and implementation procedures should be under the minister’s authority.
- OAG publication and appointment:
  - Revise the 1998 Law to require publication of the AG’s report.
  - Modify the law to specify that the AG is appointed by parliament (not the president) and reports to parliament.

### Oversight capacity, reporting, and budget preparation refinements
- Strengthen OAG and parliamentary committees:
  - Ensure OAG has adequate capacity to audit each ministry’s accounts and examine not only compliance but also economy, efficiency, and effectiveness.
  - Ensure parliamentary committees are adequately resourced to follow up on AG reports and to analyze proposed annual budgets.
- Provide fuller information to parliament:
  - Include full information on budget outcomes and explanations of deviations from budget appropriations.
  - Integrate recurrent and development budgets to facilitate fuller discussion of program outcomes.
  - Longer term: report fiscal risks and sensitivity analysis of budget projections to deviations in key assumptions.
- Budget preparation refinements:
  - Plan expenditures in advance and include a planning contingency in the budget preparation process; example contingency suggested: exclude a fixed amount (e.g., 2 percent of total expenditures) from initial spending ceilings to allow allocation for urgent unforeseen needs when the draft budget is submitted to cabinet.
- Performance accounting:
  - Gradually move toward accounting for program performance: answer questions such as “were program objectives achieved?;” “Are additional budget resources needed to achieve (sub)program objectives?;” “what is the cost?;” and “is it affordable within the revenue constraint?”
  - Develop performance indicators with a gradualist approach given capacity constraints.

* _cr03223 - 45.      The quality of expenditures recorded in monthly flash reports is undermined by_*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2003/_cr03223.pdf_