East Africa seeks $ 16 billion in debt to boost economic growth
The largest economies in East Africa plan to borrow at least $ 16 billion to finance an economic recovery, while working to ease their debt burden after the coronavirus pandemic cuts income governments.
The finance ministers of Kenya, Uganda and Tanzania will present their spending plans for 2021-2022 on Thursday, providing details on the financing of key projects, including the construction of railways and ports, following the ‘heavy debt. The three governments will face a combined budget deficit of approximately $ 16.4 billion during the fiscal year. Kenya, East Africa’s largest economy, faces a deficit of $ 8.8 billion equivalent to 7.7% of gross domestic product, which it plans to fill with external and domestic borrowing .
“Policy makers will have to lay bare their fiscal consolidation plans this year and tackle the high debt burden,” Jacques Nel, Africa Macro manager at NKC African Economics said in emailed responses to questions. “Development needs and projects already underway mean there is little room to cut spending. “
The countries are betting on a strong economic recovery for a rebound in revenues which will help reduce fiscal deficits. The International Monetary Fund forecasts 2022 growth of 5.7% for Kenya, 5% for Uganda, 4.6% for Tanzania and 8.7% for Ethiopia.
Here’s what to expect when finance ministers present their budget statements for the year starting July 1:
President Uhuru Kenyatta’s administration is prepared to borrow more to fund an 8.8 percent increase in spending to 3.66 trillion shillings ($ 33.9 billion). The additional spending is fueled by Kenyatta’s need to continue investing in highways, ports and railways as he nears the end of his second term next year.
Public debt servicing costs are likely to hit a record 1.17 trillion shillings, consuming about two-thirds of domestic revenue, according to the parliamentary budget office. This exceeds the 660 billion shillings that Treasury Secretary Ukur Yatani is proposing to spend on development projects.
Read more: Kenya 2021-22 budget gap narrows to 7.7% of GDP vs 8.7%
The government has increased its budget by 4% to 36.3 trillion shillings ($ 15.7 billion) in Samia Suluhu Hassan’s first fiscal year as president. She approached the IMF for a program to help her administration mitigate the impact of the pandemic and implement a stimulus package.
Tanzania plans to borrow nearly 10.2 trillion shillings, about half of which will come from outside sources.
Hassan is preparing to buy vaccines for his people, start deferred investments such as the $ 30 billion liquefied natural gas project led by Equinor ASA, and continue multi-billion in programs including an oil export pipeline with Uganda. Nevertheless, the government is optimistic about keeping its budget deficit below 3% of GDP.
Uganda has cut its planned spending by 2% to 44.7 trillion shillings ($ 12.6 billion) and intends to reduce the budget deficit to 6.4% of GDP, from 9.7% estimated as of June 30 . with the IMF for a loan of 1 billion dollars to boost its recovery plan.
Debt could approach 50% of GDP at the end of June, according to Moody’s Investors Service. “Still large budget deficits” brought the government’s debt burden to about 40% of GDP in fiscal 2020, from 22% in 2013, Moody’s said in a statement.
Planned spending for Africa’s second most populous country will be grow by nearly a fifth to 561.7 billion birr ($ 13 billion) for the fiscal year beginning July 8.
Prime Minister Abiy Ahmed’s administration last month sold a telecommunications license to a consortium led by Safaricom Plc as part of a plan to liberalize the economy. Doing business in the country, however, may depend on the impact of US sanctions against Ethiopia on its handling of the war in the northern Tigray region. The restrictions could also affect Ethiopia’s access to IMF and World Bank financing, and likely complicate its intention to restructure some liabilities under the Group of 20 debt relief initiative for poor countries.
The government has raised its annual budget of 10% to 3.81 trillion francs ($ 3.8 billion), and is also in talks with the IMF for a financing program. About a third of the budget will be financed from external sources.
The IMF predicts that the Rwandan economy will grow by 6.8% in 2022, against an estimated 5.7% this year.
Rwanda and Ethiopia will not present their budgets on Thursday.
– With the help of Fred Ojambo, Fumbuka Ng’Wanakilala, Saul Butera, Desire Nimubona, Fasika Tadesse, Okech Francis and Prinesha Naidoo