Season of populism opens with budgets in shadow of elections

The East African Community will this week enter a new season of populism as five finance ministers present their budget in a political environment defined by national elections.

Rwanda, Burundi, Tanzania are going into elections this year, Uganda in 2011. Kenya is going into a Constitutional referendum in August and succession politics shortly thereafter.

While the global economy is once again at risk of being dragged back into a recession by the sovereign debt crisis in Europe, optimism runs high in East Africa.

Tanzania is already preparing to borrow from the international markets through a Eurobond. Kenya has similar plans, but it is wary of the expense given the crisis that Greece is going through that has made the Ghanaian Eurobond so expensive.

So high is the optimism that all five countries have indicated in their national plans that they intend widening their budget deficits both to cushion the very poor and keep the growing ranks of unemployed youth happy as these countries head for elections—and in Kenya, a vote for a new Constitution.

The EAC member states will thus take on an ever higher national debt load to support spending on crucial infrastructure to build roads, power plants, power lines and water dams besides extending subsidies to farmers.

As finance ministers attempt to keep the delicate balance of creating jobs and attacking poverty while trying to keep debt burdens manageable, the big question that will haunt the EAC economies is how long this growth financed by higher burdens of debt can remain sustainable and what lessons can we draw from the Greek/Euro crisis as the region heads for a Monetary Union.

During the global financial crisis, these countries ramped up spending to boost demand and create jobs with the blessings of the International Monetary Fund, which also expanded its emergency lending to shore up their foreign reserves.

These interventions kept their economies ticking over and protected them from major currency swings as foreign capital fled capitals such as Nairobi.

With the worst of the crisis over, the IMF has been advising EAC countries to start going easy on the stimulus spending to avoid the risk of stoking inflation and instead redirect the money to development spending.

However, no finance minister is ready to wean their country of the stimulus cash, especially now that their bosses and themselves are heading for elections.

Take the case of Uganda and Tanzania, where the governments want to extend stimulus spending. In Uganda, where President Yoweri Museveni is seeking his third term in office in 2011, the budget for infrastructure development is expected to be cut in financial year 2010/11 as the government puts aside money to fund the general election scheduled for February 2011.

The Ministry of Works and Transport’s budget is expected to be reduced from Ush1.2 trillion ($600,000) to about Ush919 billion ($459.5 million) in 2010/11.

The energy sub-sector’s budget is expected to reduce by Ush216 billion ($108 million). These are sectors that have been receiving the biggest portions of the national budget at an increasing rate over the past three financial years.

However, their budget allocations were reduced this time round because the government had to put aside about Ush120 billion ($60 million) to run the general election.

The national budget is generally expected to reduce across other sectors too, but reductions will be most pronounced on the vote for infrastructure development, particularly roads, because the line ministry has not absorbed all money allocated to it in the past.