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Rising Debt To Dampen EAC Growth

East Africa’s economic landscape is replete with contradictions: While it is cited as being ahead in economic growth in sub-Saharan Africa with its GDP projected to expand by 6.1% against a continental average of 3.6% in 2020, the region is swimming in tough economic times.

Across the region, analysts caution that economic growth is largely superficial since it is being driven by public infrastructure investment as opposed to being private sector driven.

“Rising debt servicing costs against a backdrop of sluggish revenue growth with limit governments’ capacity to simulate economic activist and/or worsen fiscal balances, posing downside risks to investor sentiment,” said a Fitch Solutions report released in December.

Analysts at the Institute of Chartered Accountants in England and Wales project a slowdown in the region’s economic growth to 6.1% in 2020 from 6.3% in 2019.

EAC countries are therefore facing another challenging year of balancing budgetary books amid the burdens of servicing public debts, failure to meet revenue targets driven by a slugging private sector, shedding of jobs, flattening of FDIs and declining volumes of exports.

Across the region, over 40% of revenues will be directed towards debt servicing at a time when the IMFs warning that debt across the region is gravitating towards unsustainable levels.

The New Year finds the region saddled with debt to the tune of $100b, widening budget deficits and expanding current accounts, as governments undertake mega projects.

Kenya and Tanzania’s total public debts as at June 2019 stood at $58.1b and $22.5b respectively, while Uganda’s stock of public loans was $12b and Rwanda’s $5.4b.

Across the region, key sectors of the economy like agriculture, tourism, building and construction and transport are underperforming while manufacturing has slowed down and intraregional trade is on a decline precipitated by both tariff and non-tariff barriers among the EAC member states. With traditional exports declining and imports receipts rising, putting pressure on the current account, remittances are emerging as the main source of foreign exchange.

In Uganda, the government is already on the sport over plans to borrow $2b in 2020/21 financial year to partly finance its $17b budget. This will be a slight decline from the $2.6b borrowed in the financial year.

The Budget Framework Paper shows that with revenues expected to increase marginally to $9.3 billion from $8.8 billion, borrowing will be the only option in plugging the deficit. Kenyan taxpayers are bound to lose $217.2m in a dam scandal that has hugely exposed the economy to corruption and wastage.

Despite the huge cost of corruption, Kenya is facing a monumental burden of servicing China’s debt for the standard gauge railways following the expiry of the five-year grace period.

Elsewhere in Tanzania, analysts at Fitch Solutions are forecasting a sluggish year for the economy, a situation that could be compounded by national elections in October.

In 2020, Tanzania is projected to grow at 5.3%, way below a 10-year average of 6.3% registered between 2007 and 2017.

“Private consumption and government fiscal stimulus will be supportive of growth but will be insufficient” said Fitch.

In Kenya, that key sectors of the economy are struggling is evident with official data showing that economic growth decelerated to 5.1% in the third quarter of 2019 compared with 6.4% in the same period in 2018.

Only Rwanda, which over the past decade has been among the fastest growing economies, is expected to anchor growth in the region expanding at 8% from 7.8%.

This article was originally published on The Citizen.


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