By Arthur Asiimwe and Helen Nyambura-Mwaura
KIGALI, June 30 (Reuters) - Rwanda's economy will grow by 7 to 8 percent in 2009 compared with a projected 7 percent this year, Finance Minister James Musoni told Reuters.
"We project between 7-8 percent next year driven by the service sector followed by agriculture and industry," he said.
Musoni said inflationary pressure in the country was high due mainly to fuel prices but the government expected it to remain in single digits thanks to good local agricultural output. Inflation in May stood at 8.7 percent.
"Imported inflation has been the major driver because of transport, so if we keep performing well domestically, we should be able to contain inflation in a single digit and our target is between 5-8 percent by the end of the year."
In a wide-ranging interview on Sunday, Musoni also said he expected to close a deal next week on selling a stake in carrier Rwandair and also expected an offer in July for a stake in the Banque De Kigali.
Musoni said Belgium's Brussels Airlines and Italy's Meridiana had submitted offers for a 40 percent stake in the carrier and that the privatisation committee was examining them.
"I think next week we should be able to close the deal."
Of the four banks that were interested in a 70 pct stake in the Banque de Kigali, only Barclays <BARC.L> had met all the requirements, he said. "They are doing due diligence to give an offer, we expect their offer before July 15."
On exports, the minister said he expected mining earnings in 2008 to increase by $10 million from $70 million last year, and coffee earnings to rise to about $60 million from production of between 25,000 and 28,000 tonnes, from 15,000 tonnes last year.
"Coffee last year was not really exciting but this year we expect improvement," he said. "Tea is also likely to improve. This year, we expect a 15 percent increase."
Tea production in 2007 was 20,000 tonnes.
FRESH FUNDING
Musoni said Rwanda was revising its 2008 budget spending up by 7 percent to factor in fresh funding and domestic revenues.
Spending would rise to 667 billion Rwanda francs ($1.2 billion) from the previously planned 621 billion francs to reflect a $10 million grant from the World Bank for the energy sector and another 5 million pounds ($10 million) for health.
It projects domestic revenues will grow by 10 billion francs from a former 270 billion estimate.
The Indian government has also extended a $20 million loan for building a hydroelectric dam but the finance minister said he was not factoring in all the money, which should be repaid in 20 years at a rate of 1.75 percent.
Musoni said Rwanda would revise its financial year to run July-June in line with other partner states in the five-nation East African Community economic bloc.
Close to 50 percent of government spending is supported by donors but Musoni said it did not cause undue interference by the donors and that it was only a temporary measure.
"So far, our aid policy is clear: that any support has to be aligned with national priorities and national ownership ... Our aid policy is clear, if the aid does not fit there, we reject it," he said.
"We look at aid as a transitional arrangement."
CONCESSIONARY BORROWING
Musoni said domestic borrowing for 2008 was purely for microeconomic management and not to finance expenditure, nor would Rwanda issue infrastructure bonds, unlike partner states Kenya and Uganda that are expected to issue Eurobonds.
"For the time being, although our rating is B and we would be able to attract investors in our bond if we were to raise it, we don't intend to because we feel we have to keep prudent on our debt account," he said.
"We are not ruling out issuing a bond but currently, we can borrow concessionary on specific projects."
Rwanda received a debt write-off worth $1 billion from a total $1.4 billion through an initiative to lessen the debt burden of the Highly Indebted Poor Countries. (Writing by Helen Nyambura-Mwaura; Editing by Ruth Pitchford) (For full Reuters Africa coverage and to have your say on the top issues, visit: http://africa.reuters.com/)
