EDITORIAL: Ambitious budgets, wounded economies

Saturday June 15 2019

Finance ministers Henry Rotich (Kenya), Philip Mpango (Tanzania) and Matia Kasaija (Uganda).

Finance ministers Henry Rotich (Kenya), Philip Mpango (Tanzania) and Matia Kasaija (Uganda) on June 13, 2019. PHOTOS | DAILY NATION, EDWIN MJWAHUZI, MORGAN MBABAZI 

The EastAfrican
By The EastAfrican
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East Africa this week completed the annual ritual of unveiling national spending plans for the coming fiscal year.

That has been the case for the previous five years during which the thematic refrain has remained unchanged, with Kenya, Uganda, Rwanda and Tanzania all budgeting for industrialisation and improved welfare.

That persistence of the theme in part reflects the protracted nature of the implementation of these goals but if our finance ministers have encountered any problems achieving them, that fact is not reflected in the tactics employed in their pursuit.

As in previous years, the tax burden continues to pile up on citizens as debt-financed infrastructure sucks up an ever expanding slice of the resource envelope.

On the surface, the countries appear to be doing well as the portion of the budget that will be domestically financed reaches nearly three-quarters across the four countries.

Yet the strains are hard to conceal. Twenty-six per cent of the budget will be externally financed. Despite a positive debt sustainability rating by the World Bank and IMF from medium to strong, Uganda will see its fiscal deficit expand nearly three per cent to 8.7 per cent of GDP.


Debt repayment and servicing will eat up a quarter of the budget. With the window for external borrowing closing rapidly, domestic borrowing and its attendant risk of crowding the private sector out of the credit market will rise.


That hardly speaks to encouraging industrialisation; as one analyst observed, the budgets fall critically short of sending macroeconomic signals.

In an environment saddled with interest caps, the single macroeconomic signal in the budget to investors, is to put their money in government paper.

Although it will see the fiscal deficit shrink from 7.4 per cent to 5.6 per cent, Kenya plans to borrow $2.8 billion domestically. The Ksh324 billion ($3.24 billion) that Kenya will source externally to finance the budget speaks to the problem of already existing debt whose repayment is partly financed by new borrowing.

Another salient feature of the regional budgets is that while they are good at expressing intention, they are not as clear on how exactly these plans will implemented and achieved.

While they all project strong economic growth rates – 6.2 per cent in Kenya, 7.8 per cent for Rwanda and 6.1 per cent for Uganda – most of this growth has in the recent past been driven by services and infrastructure development.

A challenge with this mode of growth is that the majority of citizens will not feel it in their pockets because most of the benefits are externalised to source countries for the key inputs.

The reality is that East Africa’s economies are in a state of palliative care. As the leaders pay attention to the cosmetics of dressing the wounds, they ignore the practical alternatives that could drive inclusive growth on a regional scale.