EDITORIAL: East Africa budgets face low revenues and growing debt

Saturday June 16 2018

Uganda, Tanzania, Kenya, and Rwanda presented their budgets on June 14, 2018. PHOTOS | NMG

Uganda, Tanzania, Kenya, and Rwanda presented their spending plans on June 14, 2018. PHOTOS | NMG 

By The EastAfrican
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East African Community Finance ministers read their budgets speeches for the 2018/2019 fiscal year on Thursday, outlining the measures they intend to take to fund the anticipated spending for the next 12 months.

This year’s budgets, however, come against a backdrop of weaker than expected economic growth for regional economies, declining revenue collections, rising debt levels and falling intra-regional trade.

While the region's governments have pinned their hopes of achieving ambitious revenue collection targets this year on stronger growth of their domestic economies, the fundamentals on the ground paint a different picture and their failure to meet most of the macroeconomic targets for the 2017/2018 fiscal year puts funding for the 2018/2019 budgets on a precarious footing.

East African economies are still grappling with shrinking credit to the private sector, ballooning public debt, volatility of local currencies against the dollar, high cost of power and the recent floods, that destroyed crops and infrastructure, pointing to reduced agricultural output this year and more expenditure on crucial infrastructure rehabilitation.

The high cost of electricity and its availability have been of concern to foreign investors, especially in Uganda.

While official data on the revenue performance of the 2017/2018 fiscal year are yet to be released, indications are that Kenya, Tanzania and Uganda missed their revenue targets while Rwanda achieved its target, going by the quarterly statistics.

During the period July-December 2017, Rwanda Revenue Authority surpassed its revenue collection targets by collecting a total of Rwf582.7 billion ($668 million) against a target of Rwf572.6 billion ($656 million).

While the Finance ministers have been quick to raise tax rates and to widen tax bases to finance their huge budgets, their inability to account for revenues losses through tax evasions and corruption has done more harm than good to taxpayers who are hit with new taxes every financial cycle.

In Kenya, it is estimated that more than 30 per cent of the annual budget is lost to corruption and tax cheating. In Uganda, about 30 per cent of eligible VAT is not collected, translating into a loss of four per cent of tax to gross domestic product.

Tanzania has tried to deal with issues of tax evasion, which has resulted in an increase in monthly revenue collections to Tsh1.3 trillion ($569 million) from Tsh850 billion ($372 million).

The region is trapped in the web of infrastructure development which has seen it sink millions of dollars in oil pipelines, roads, rail networks, airports and ports. However, these are coming at very high costs, often financed by expensive external debt.

Kenya’s debt currently stands at Ksh5 trillion ($50 billion), while Tanzania’s had risen to Tsh57.96 trillion ($25.37 billion) by January this year. Uganda’s debt had grown to $10.53 billion of which external debt stood at $7.18 billion while domestic debt stood at $3.53 billion.

All these factors point to the fact that fulfilling the promises the Finance ministers have made in the budget proposals may not be possible.