East Africa's debt rises by $10b, stoking fears over repayment

Sunday April 1 2018

East Africa’s debt rose by over $10.4 billion

East Africa’s debt rose by over $10.4 billion last year, as countries ramped up spending on key infrastructure projects. SOURCE | RESPECTIVE COUNTRIES CENTRAL BANK DATA  

By ALLAN OLINGO
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The region’s debt rose by over $10.4 billion last year, as countries ramped up spending on key infrastructure projects, amid concerns about repayment capability.

Kenya led its EAC peers in the debt accumulation, packing up $7 billion, while Tanzania took up $2.05 billion. However, both governments have assured their citizens that things are under control.

Tanzania’s President John Magufuli on Monday said the government was far from debt distress. He was responding to a warning by the controller and Auditor-General against over-borrowing.

“The skyrocketing national debt is a source of concern. This rise in debt, if left unchecked, would go out of hand, plunging us into debt distress,” Prof Mussa Assad had warned.

But President Magufuli is confident that the projects his administration is undertaking will generate enough revenues to repay the debts.

“We still have room for further borrowing…. The most important thing is how we will manage these borrowed funds to ensure that the projects they are invested in are able to generate enough to repay the debt,” the president said.

Tanzania’s debt stock

Tanzania’s external debt stock stood at $19.41 billion at the end of January, an increase of $67.7 million from December 2017.

The increase was mainly on account of new disbursements. In January alone, Tanzania paid out $200 million in interest out of the outstanding $1.05 billion.

Dar es Salaam also recorded a $2.6 billion cumulative debt fall due during the year ending January 2018, out of $2.199 billion that was rolled over, and the balance was paid out of government resources.

Data from the Bank of Tanzania shows that the country’s stock of domestic debt, including overdraft, rose to $6.1 billion at the end of January, an increase of $778.4 million from the end of January 2017.

Most of the outstanding domestic debt stock was long-term, in the form of bonds and stocks. This portion accounted for 67.5 per cent of the stock, higher than 67.1 per cent and 66 per cent of the debt stock at the end of December 2017 and January 2018.

“This development augurs well with the medium- term debt management strategy, which entails lengthening maturity profile of domestic debt in the endeavour to mitigate refinancing risk,” BoT said.

Domestic debt, which fell due for payment during January 2018, doubled to $299.9 million, from $152.1 million in the preceding month.

Out of debt that matured in January, a principal amounting to $248.6 million was rolled over while interest amounting to $51.36 million was paid out of government resources.

Kenya public debt

Kenya, which has lately come under the radar of Bretton Wood institutions over its debt profile, saw its public debt exceed $47 billion, reflecting its increasing appetite for loans despite recent warnings over the pace at which the debt is accumulating. The amount factors in Februarys’ $2 billion Eurobond.

“The gross public debt increased from $38.2 billion as at end of December 2016 to $45.7 billion by December last year. The overall increase is attributed to a rise in the external debt as a result of exchange rate fluctuations and disbursements from external loans,” Treasury said in its latest Quarterly Economic and Budgetary Review report released last month.

The debt comprises 51.9 per cent foreign loans and is slightly higher than the $41.91 billion at the start of this financial year in June 2017. In the 2018/19 year, Kenya expects to use $6.58 billion, or 45 per cent, of projected $14. 4 billion tax revenue for payment of its domestic and external loans.

Since President Uhuru Kenyatta took over in 2013, Kenya’s appetite for commercial debt has risen, seeing its interest payments rise from 10.7 per cent to the current 19 per cent of its revenues.

The IMF has advised the government against over borrowing.

“We advise government to work towards reducing debt as it is approaching unsustainable levels,” Jan Mikkelsen, the IMF resident representative to Kenya told Parliament in February.

Kenya has also seen its stock of domestic debt rise by $2.94 billion to $22.2 billion in June 2017 up from $19.26 billion the previous year, with Treasury bills forming a majority of this at $6.8 billion.

The stock of Treasury Bills held by Central Bank, Commercial Banks, non-banking financial institution and non-residents increased by $1.23 billion to $11.04 billion over a similar period.

In terms of its external debt, the country’s debt stock increased by $4.25 billion from $18.5 billion in December 2016 to $22.75 billion by end of December 2017.

The debt stock, Treasury said, comprised 33.3 per cent, 35.8 per cent, 30.1 per cent and 0.7 per cent of debt owed to bilateral, multilateral institutions, commercial banks and suppliers’ credit, respectively.

Uganda’s debt

In Uganda, the government has revealed that its national debt has nearly trebled in the past three years to more than 50 per cent of GDP, creating a default risk, since nearly two-thirds of that borrowing is external.

Bank of Uganda (BoU) in a report released last week, said the rising costs of servicing the country’s $15.1 billion of debt could hit economic growth because of reduced public investment.

According BoU data, interest repayments in the 2018/19 fiscal year will eat up 17.3 per cent of state spending, the largest chunk of the budget.

In February, Uganda disclosed that it would borrow $189.2 million from the domestic market to help pay civil servants’ salaries after a shortfall in state revenues.

Uganda’s debt rose by 9.4 per cent mainly on account of a 12.2 per cent growth in public external debt), which continues to have the dominant share of 66.3 per cent of total public debt.

The country has in recent times ramped up borrowing, mostly from China, to fund infrastructure projects including roads, power plants, and an airport expansion.
As at December 2017, Uganda’s external debt was $6.8 billion while domestic debt amounted to $3.45 billion, which is an increase of 12.2 per cent and 4.2per cent, respectively, compared to June 2017.

The provisional stock of public external debt disbursed and outstanding stood at $6.9 billion as at end December 2017, representing an increase of an increase of 24.6 per cent in the corresponding period a year ago.

The total external debt exposure (debt disbursed and outstanding and debt committed but undisbursed) amounted to $11.69 billion as at end December 2017.

“The present value of total public debt as a ratio of GDP stood at 28.1 per cent as at the end of December 2017, which is lower than the PDMF benchmark of 50 per cent.

“However, including committed but undisbursed loans, the ratio of total public debt to GDP is closer to the threshold. This poses a risk of higher exposure or failure to meet external debt obligations in case of exchange rate volatility and slow growth in exports.

“In addition, high debt may become a drag on economic growth by discouraging public investment due to the high debt service costs,” BoU said in the report.