East Africa’s Finance ministers completed their annual budget reading ritual with few surprises on Thursday. Hemmed in by the effects of the Covid-19 pandemic and deepening debt holes, they struggled to bring cheer to a largely bleak situation.
What is evident is that the high-wire act they performed with finesse a few years ago is becoming ever more difficult to sustain under gusty weather. As they rely more on debt to keep the groceries on the table, debt is expanding faster than economic growth. Amid single-digit growth, the portion of recurrent expenditure going to debt servicing is hurting the social sector.
With no way of shutting down borrowing, at least in the short term, legislatures need to be alive to their watchdog role. Battered by a drop in global commerce, domestic revenues are down. Matching expenditure with revenue will be difficult because fighting the coronavirus imposes huge consumptive and development obligations.
Governments will only preserve the productive capacity of the population if they invest in its health. But spending money and achieving intended goals can be different things. Legislators will need to police the Executive more vigorously to ensure that every penny counts.
Ambitions will need to be cut to size. If money is to be borrowed, its purpose and the feasibility of the project needs to be carefully weighed. In the current environment, it will make more sense to pace the huge infrastructure projects in the pipeline with a priority on completing those already underway. New projects should be implemented only if they have short gestation periods that will ensure early release of benefits.
Short gestation periods should be preferred over the short to medium term because the projects can then contribute to revenue. Another challenge that needs to be resolved before new projects are started is execution. Many projects have delivered below projection because of sluggish implementation which has postponed the expected economic dividend.
Planners also have to change tack. Africa has failed to build internal resilience, largely because economic growth has been driven by public investment. With most material and intellectual inputs in physical infrastructure projects externally sourced, public investment has become an avenue for capital flight. And when governments go bust, growth stalls. To avoid a crash, more money is borrowed, increasingly at high cost, creating a vicious cycle of debt.
The debt trap is not inescapable if planners can cultivate a little more patience and think outside the box. For one, we can stop digging the holes and think of ways of building internal resilience. Sustainable growth and internal resilience can be brought within reach, by adopting a policy stance that favours internal consumption and private sector led investment as the sources of growth.
Manufacturing capacity utilisation is below par in many places because of low internal consumption. Minimum wages are way below the cost of living and many workers cannot afford to consume the goods they produce. This has led to an over reliance on mostly inaccessible export markets. Complementing buoyant internal consumption with private sector investment and labour equity, can pull economies out of unsustainable debt.