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August 01, 2011

Rwanda: A Decade of Difficult but Sustained Public Financial Management Reforms

Posted by Lewis Kabayiza Murara

Only a decade ago Rwanda did not possess a properly articulated public financial management system, and there were few qualified staff to run the system, especially public accountants. Since then the government has put in place many of the elements required for a sound system of public financial management. Some weaknesses remain, in particular in relation to local accounting capacity, but the government of Rwanda appears firmly committed to establishing a modern, efficient, transparent and accountable PFM system. In 2006, the government put in place a Public Financial Management Action Plan aimed at strengthening several aspects of the existing public financial management system. In particular, the government sought to strengthen accounting capacity, improve the audit function, and put in place more robust financial controls and reporting procedures, new rules on fiscal and financial decentralization, and procurement reforms. Subsequently, and following the first-ever PEFA assessment on Rwanda in 2007, a comprehensive and ambitious five-year Public Financial Management strategy was prepared in 2008 and is now being implemented, with some degree of success as evidenced by a repeat PEFA assessment concluded in December 2010.

This blog post attempts to summarize salient features of Rwanda’s public financial management landscape, including a short paragraph on public procurement (which tends to be forgotten by IMF and other PFM specialists as a key area in public financial management and tends to be treated separately).

 A New Framework

Over the past decade the government has established many of the essential elements of the policy and strategic framework for sound public financial management. It has an agreed 2020 Vision Statement, an Economic Development and Poverty Reduction Strategy with a five-year horizon, and a Medium-Term Expenditure Framework (MTEF); all drafted through a process of wide consultations. Taken together, the documents set out a comprehensive and well articulated set of objectives and priorities to guide the budgeting process.

Rwanda has made great strides in establishing a legal framework for budget management with the Organic Budget Law and accompanying financial regulations passed in 2006. The law clearly assigns the powers, roles and responsibilities of different actors in the public expenditure management system, and makes clear the separation of powers between the legislature and the executive. The budget is prepared through a transparent set of procedures, while the budget classification is consistent with international standards. The Organic Budget Law defines the documentation to be provided to Parliament in support of the proposed budget including the macroeconomic assumptions, MTEF document, revenue projections, and proposed spending, together with information on the progress made in the implementation of the current budget. The Organic Budget Law also requires public institutions not covered by the government’s budget to submit financial reports and proposals covering their activities. The law prohibits government incurring extra-budgetary expenditures whatever their source. Overall expenditure controls are strong; the process of budget preparation works well, and is based on a robust classification scheme and a clear calendar that is now harmonized with that of the East African Community of which Rwanda is now a member. However, the Ministry of Finance is still struggling with strengthening the interfaces between budget and MTEF and MTEF and the national planning process (and between the budget and the planning department; at least in Rwanda the budget department is responsible for both budget and MTEF).

Remaining weaknesses

A transparent set of rules governs transfers from the central government to local governments. The procedures and requirements for the management of District Council funds are set out in a manual, including the preparation of a District/City MTEF and a budget framework paper guided by five-year District Development Plans. In practice, there are some shortcomings in fiscal and financial management at sub-national level, but given that the local governments have only recently assumed these responsibilities as part of the government’s fiscal decentralization efforts, it is remarkable how much progress has been made.

Management of public assets is a particularly weak area in Rwanda. Like in many countries considerable waste and theft occurs in the management of public assets. Well developed systems for the management of public assets are not yet in place in Rwanda. Public institutions do not maintain adequate assets registers and exercise little control over public assets management. The government is struggling to address this issue through the development of an integrated financial management information system which will deploy a public assets management module.

Revenue Management and Tax Administration

The Rwanda Revenue Authority (RRA) was established as an autonomous body in 1998. Since then it has achieved a tremendous increase in tax revenues. By 2008, tax revenues stood at around USD 600 million annually compared to around USD 100 million in 1998. RRA has carried out a broad range of important measures to strengthen its organization which, taken together, represent cutting-edge best practice. As a result, corruption and abuses within the service are believed to be minimal. Equity and fairness is ensured through an independent tax appeals mechanism. The evident success of the RRA can be attributed to strong political support, effective capacity building, and solid, sustained, and substantial donor support. But as recent studies suggest, including the recently concluded World Bank Central Finance Agency study, a number of issues remain, including (1) a clear separation of powers for tax policy and tax administration which are still combined by the RRA with very minimal guidance from the Ministry of Finance; this creates issues of conflict of interest; and (2) broadening the tax base and easing the burden on the still relatively few compliant taxpayers.

Financial Reporting, External Audit, and Parliamentary Scrutiny 

Due to limited capacity and lack of a culture of accountability that characterized the pre-genocide period (the first Accountant General of Rwanda was appointed only in 2005, and the Office of the Auditor General started operations in 2000, replacing the old “Cour des Comptes” which had never done an audit since it was created in 1963), the government had been unable to prepare consolidated financial statements until 2006 when it produced its first set.

The external audit function is a relatively new function in Rwanda, and the Public Accounts Committee was only recently established in Parliament. Audit reports have been produced and submitted to Parliament since 2000, and their quality has gradually improved. Coverage of audits is still limited but improving (the Auditor General’s report for the year ended June 30, 2010 covers 33 percent of public entities representing 70 percent of total government expenditure: http://oag.gov.rw/spip.php?article46); there is still inadequate follow up on audit recommendations. However, full credit needs to be given for the achievements that have been made so far in setting up a relatively effective external audit function in the space of only a few years. The Office of the Auditor-General has already become a source of considerable pressure for improved accountability in public financial management. The Parliament’s Public Accounts Committee discusses and prepares a formal response to the Auditor-General’s report but its scrutiny is hampered by a lack of resources.

Public Procurement

Until recently, procurement in Rwanda was governed by a royal decree dating back to the colonial period in 1959. A National Tender Board was established in 1997. A new Public Procurement Law was enacted in 2007. In 2008, the government established a Public Procurement Authority to replace the National Tender Board. Between 2008 and 2011, procurement was gradually decentralized to operational units, while leaving the Public Procurement Authority with a policy and oversight role. In practice, there are still cases of non-compliance with procurement procedures in Rwanda but the shortcomings in public procurement need to be viewed in the context of relatively new institutions, rapid change, and improving procedures. Much has been achieved, and opportunities for corruption have been greatly reduced. However, it is clear that there remains important work to be done to further strengthen the way procurement is handled to achieve greater transparency, more competitiveness, and to reduce further the scope for corruption.


The government of Rwanda is strongly committed to putting in place a sound PFM system. Given the almost complete absence of a modern PFM system after the devastating genocide in 1994, impressive steps have been taken towards achieving this objective within less than a decade during which all PFM reforms were introduced. This achievement is evidence of strong political commitment to establishing an accountable PFM system. An appropriate legal and institutional framework is largely in place, and many of the missing elements are under active consideration, including modernization of the country’s IFMIS. Two PEFA assessments have taken place (in 2007 and 2010) and have demonstrated the efforts made, and have helped the government to design reforms aimed at addressing weak areas and consolidate the gains so far made towards establishing transparent systems. However, progress in implementing a modern PFM system is handicapped by the chronic shortage of trained accountants and qualified and experienced financial managers but overall, considering the resources and capacity at hand, it has largely been an impressive decade for PFM in Rwanda despite the extremely lean Ministry of Finance and indeed the whole of the government of Rwanda as a result of massive downsizing of staff numbers and the flattening of the grading structures. Despite having a powerful policy mandate, the Ministry of Finance in Rwanda remains one of the smallest in the world in terms of staff numbers, and as shown above, this has affected the capability of the ministry in some key areas such as tax policy, MTEF and macroeconomic forecasting, and fiscal policy analysis.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.


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I wonder if the civil service reforms are also in place in Rwanda. In my experience with the small developing countries, PFM reforms are committed and introduced by the governments with great enthusiasm; but somewhere down the line, the civil service staffs, practices, regulations, codes etc. remain left behind. As a net result, we have donor funded reform activities and agenda, with the old national mindsets and low capacity.

You are absolutely right. See the last two sentences of my conclusion. Some really bold and ambitious civil service reforms were introduced in Rwanda with some success, but a number of them went a bit too far in some sectors. For instance the massive downsizing across the board and drastic cuts of staff numbers may have resulted in huge savings on personnel costs and may have introduced a new culture of operating a lean government, but some sectors struggle to discharge some of their core functions with the very few staff they have. This is exacerbated by a flat structure applied across government which leaves insufficient room for career progression and creates weak incentives for junior and mid-level staff to stay in the organization. Pay has also been another issue although being addressed seriously now, and there is still a long way to go to strengthen institutional as well as structural challenges affecting civil service. There are merits in the kind of civil service reforms the government of Rwanda has undertaken so far, and this would be the subject of another blog post! But in summary, yes, civil service reforms are lagging behind PFM reforms, but one unknown feature about the government of Rwanda is its ability to identify inadequate approaches and taking very swift action.

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