Advertisement

Life on a shoestring as East Africa govts seek funds

Saturday May 18 2013
budgets

East Africa countries appear to have resorted to internal efficiency to increase revenues, while at the same time seeking innovative ways to raise funds. TEA/FILE

Austerity is the watchword as East Africa tries to balance massive public spending needs against low internal revenues, an aid freeze by donors for some countries and ballooning public debt.

Faced with growing demands for increased spending, especially in the social and infrastructure sectors, the East Africa countries appear to have resorted to internal efficiency to increase revenues, while at the same time seeking innovative ways to raise funds without burdening a weary public.

READ: Tax shortfalls, high expenditure

Tanzania, Rwanda, Uganda and Kenya are currently in the critical phase of discussing their budget estimates in parliament, ahead of fine-tuning and eventual presentation to the public next month.

Kenya has unveiled a plan to reduce its public borrowing by a third in an attempt to boost local production and ease the pressure on local interest rates. At the same time, Treasury is proposing to increase the foreign component of its borrowing, as it seeks to lengthen the maturity profile of its debts.

According to the proposals, Kenya seeks to borrow Ksh106 billion ($1.26 billion) from the domestic market in the 2013/2014 financial year, compared with Ksh164.9 billion ($1.96 billion) in the previous year.

Advertisement

The government plans to raise Ksh880 billion ($10.48 billion) or half of its Ksh1.6 trillion ($20 trillion) budget from taxes, with the remainder expected to come from external sources as well as receipts, penalties and licence fees. Kenya traditionally collects more from taxes than its East Africa peers.

From foreign governments, Kenya plans to borrow some Ksh63 billion ($750 million) in 2013/14, up from Ksh56 billion ($670 million) last year, while borrowing from international organisations will increase five per cent to Ksh77 billion ($920 million) from Ksh73 billion in 2012. The country plans to issue a $1 billion sovereign bond in the fourth quarter of the year and use the proceeds to fund part of the country’s Ksh1.6 trillion ($20 billion) budget.

In Uganda, the road ahead looks bumpy as an ongoing parliamentary scrutiny of the proposed estimates has revealed huge funding gaps on the back of a shortfall in direct donors’ funding and minimal revenue collections.

Donors’ contribution to the budget has fallen by a massive 93 per cent. Prior to the cuts, it was estimated that the donors would contribute $289 million in the form of budget support in the coming financial year, but that has now come down to a paltry $19 million.

ALSO READ: Donors: Uganda Reforms ‘not good enough’

The government has an overall resource envelope of $4.7 billion for the financial year 2013/2014 that it raised through domestic borrowing and local revenues. However, only $3.7 billion will be available for spending as the remaining $1 billion will be used to service both external and domestic debts.

Uganda is currently looking for ways to raise $122 million to fund wage increases for teachers and public servants promised by the government last year. Such is the gravity of the shortfall that certain departments are now looking at ways to raise funds or better use existing resources. The army, for instance, is considering using its engineering capability to create a new revenue stream.

In Tanzania, an initial budget of Tsh24 trillion ($14.8 million) had to be whittled down to just Tsh17.7 trillion ($10.9 million) to align it with the projections on revenue collection.

Tanzania expects to increase tax revenue collections to Tsh9.5 trillion ($5.8 million) in the financial year 2013/14.

One proposal that has been received positively is the fact that 70 per cent of the proposed budget will be used for procurement of goods and services from the private sector, which is likely to improve local productivity and incomes for individuals, households and companies.

In its estimates, Rwanda has proposed to lift a freeze on hiring of critical staff in the education and health sectors, as part of its overall spending plans totalling Rwf1.576 trillion ($2.5 billion) for 2013/4, against the previous year’s level of Rwf1.425 trillion ($2.2 billion).

The government suspended the hiring of public servants late last year after donors put a lid on funds over allegations that Rwanda was aiding the M23 rebels in eastern Democratic Republic of Congo.

ALSO READ: Rwanda loosens belt, lifts freeze on state jobs

Stung by the decline in donor support, Rwanda is keen to increase the portion of its budget that is financed from local sources, signalling higher taxes for the population. The draft budget sets a target of Rwf749.1 billion ($1.2 billion) in tax revenues, while some Rwf256.6 billion ($400 million), which represents 4.8 per cent of the GDP is expected from domestic borrowing.

Kenya has been the laggard in the budgeting process, with parliament expected to start discussing the estimates this week. This follows the resolution of a standoff pitting the government side and opposition MPs on the composition and leadership of watchdog committees.

Even then, parliament and by extension the public will have no more than six days to discuss the estimates, a far cry from the 21 days provided for in the Constitution.

Advertisement