East Africa’s largest economies are planning to borrow at least $ 16 billion to fund economic recovery, while striving to reduce their debt burdens after the coronavirus pandemic weighed on government revenues.
Finance ministers in Kenya, Uganda and Tanzania will present their spending plans for 2021-22 on Thursday and provide details on funding key projects such as the construction of railways and ports in light of the high level of debt. The three governments will struggle with a joint budget deficit of around 16.4 billion US dollars in the fiscal year. Kenya, the largest economy in East Africa, faces a $ 8.8 billion gap versus 7.7% of gross domestic product, which it aims to fill with foreign and domestic credit.
“This year policymakers will have to disclose their fiscal consolidation plans and address the increased debt burden,” said Jacques Nel, head of Africa Macro at NKC African Economysaid in email responses to questions. “The need for development and the projects already in progress leave little scope for savings.”
Countries are betting on a strong economic recovery for a revenue recovery that will help reduce budget deficits. The International Monetary Fund is forecasting growth of 5.7% for Kenya, 5% for Uganda, 4.6% for Tanzania and 8.7% for Ethiopia in 2022.
This is what awaits you when the finance ministers present their budget bills from July 1st.
President Uhuru Kenyatta’s administration stands ready to borrow more to fund an 8.8% increase in spending to 3.66 trillion shillings ($ 33.9 billion). The additional spending is fueled by Kenyatta’s need to continue investing in expressways, ports and railways as he nears the end of his second term next year.
Public debt service costs are expected to rise to a record 1.17 trillion schillings and consume about two-thirds of domestic revenue, according to the parliamentary budget office. That exceeds the ATS 660 billion that Finance Minister Ukur Yatani wants to spend on development projects.
The government did elevated increased its budget by 4% to 36.3 trillion shillings ($ 15.7 billion) in Samia Suluhu Hassan’s first fiscal year as president. She has reached out to the IMF for a program to help her government mitigate the effects of the pandemic and implement a recovery plan.
Tanzania plans to borrow nearly 10.2 trillion shillings, about half of which is believed to come from outside sources.
Hassan is preparing to source vaccines for their people, starting and continuing delayed investments like the Equinor ASA-led $ 30 billion liquefied natural gas project MultiBillions in programs, including an oil export pipeline with Uganda. Still, the government is optimistic that it will keep its budget deficit below 3% of GDP.
Uganda has reduced its planned spending by 2% to ATS 44.7 trillion ($ 12.6 billion) and aims to reduce the budget deficit to 6.4% of GDP from an estimated 9.7% on June 30th. The government of Africa’s largest coffee exporter is in talks with the IMF for a $ 1 billion loan to advance its recovery plan.
Debt could approach 50% of GDP by the end of June, according to Moody’s Investors Service. “Persistently high budget deficits” increased the government’s debt burden from 22% in 2013 to around 40% of GDP in fiscal 2020, Moody’s said in a statement.
Planned spending for Africa’s second most populous nation will be to grow by almost a fifth to 561.7 billion birr (13 billion US dollars) for the fiscal year beginning July 8th. The government is moving between maintaining the region’s fastest economic growth and containing debt on a tight tightrope.
Prime Minister Abiy Ahmed’s government last month sold a telecommunications license to a consortium led by Safaricom Plc as part of an economic liberalization plan. However, doing business in the country could be dependent on the impact of US sanctions against Ethiopia in terms of handling the war in the northern Tigray region. The restrictions could also affect Ethiopia’s access to IMF and World Bank funding and likely complicate its intention to restructure some of its liabilities under the Group of 20 debt relief initiative for poor countries.
The government has theirs annual budget by 10 percent to 3.81 trillion Swiss francs (3.8 billion dollars) and is also in talks with the IMF about a financing program. Around a third of the budget is financed from external sources.
The IMF is forecasting economic growth of 6.8% for Rwanda in 2022 from an estimated 5.7% this year.
Rwanda and Ethiopia will not present their budgets on Thursday.
– With the support of Fred Ojambo, Fumbuka Ng’Wanakilala, Saul Butera, Desire Nimubona, Fasika Tadesse, Okech Francis and Prinesha Naidoo