Dar es Salaam. The major member countries of the East African Community (EAC) will feel the pinch of their growing debt burdens during the coming financial year which starts on July 1, 2021.
Analysis of budget figures shows that Tanzania, Kenya and Uganda could have to cough up a total of Sh47 trillion in debt financing during the 2021/22 financial year.
While Tanzania has been somewhat conservative in its approach to borrowing, reports show that the situation could be getting out of hand for Kenya, while Uganda’s debt is approaching the set threshold of 50 percent of gross domestic product (GDP).
The three largest EAC economies among the regional economic bloc’s six-member nations have adopted different approaches to borrowing as they seek to finance their massive socioeconomic infrastructural projects.
The countries’ budgets – which were presented by their respective Finance ministers in their respective Parliaments on Thursday last week – show that Kenya will collect and spend Ksh3.66 trillion (about Sh73 trillion), while Uganda’s budget is estimated at Ush44.7 trillion (about Sh27 trillion).
Tanzania’s 2021/22 budget is set at Sh36.33 trillion.
Kenya could spend up to Ksh1.17 trillion (about Sh23.4 trillion) on debt servicing, while Uganda and Tanzania could spend $5.66 billion each: i.e. about Sh13 trillion for Uganda, and Sh10.67 trillion for Tanzania.
This is according to the three countries’ budget frameworks that were presented several weeks before the next financial year starts next July 1.
As for Tanzania, the Minister for Finance and Planning, Dr Mwigulu Nchemba, told the National Assembly on Thursday last week that the country will spend a total of Sh10.67 trillion on servicing the national debt and other related costs during the 2021/22 financial year.
Thus, the amount that the three countries could spend on debt financing in the new fiscal year is equivalent to 64 percent of Kenya’s total budget; 135 percent of Tanzania’s total budget – and 174 percent of Uganda’s total budget.
Analysts say that a high national debt generally means that the given country’s economic growth rate is largely superficial. This is especially considering that many national debts in developing countries are the result of public infrastructure investments as opposed to being private sector-driven.
“Rising debt servicing costs against a backdrop of sluggish revenues growth will limit governments’ capacity to stimulate economic activity – and/or worsen fiscal balances, thus posing downside risks to investor sentiment,” said Fitch Solutions Inc. in one of its recent reports.
The high national debts mean that the EAC countries involved were facing the challenge of balancing their budgetary books amid the burdens of servicing public debts.
At the same time, the countries were contending with the failure to meet public revenue targets – failure that is usually driven by a sluggish private sector, the shedding of jobs, slackening foreign direct investments (FDIs) and declining volumes of exports.
Finance minister Nchemba told Parliament last week that the Tanzania government’s debt stood at about Sh61 trillion as of April 2021 – constituting Sh43.7 trillion in external debt, and Sh17.3 trillion in domestic debt.
He, however, stressed that the debt was sustainable, citing the 2020 Debt Sustainability Analysis Report which “shows that government debt is sustainable in the short, medium and long term – based on all internationally-accepted debt sustainability indicators.”
In Kenya, it is projected that the total debt will jump to Ksh8.59 trillion (about Sh172 trillion) in the year to June 30, 2022. Notably, this is less than two months before the end of Uhuru Kenyatta’s second and final 5-year presidential term.
Several local and international institutions – including the International Monetary Fund (IMF) and the World Bank – have expressed concern over Kenya’s rising appetite for borrowing to finance state expenditure.
Despite noting that Kenya’s debt was still sustainable, the IMF nonetheless raised Kenya’s risk-of-debt distress from ‘moderate’ to ‘high’ in May last year. This was largely due to the impact of the new global Covid-19 pandemic.
In 2019, Kenya’s national debt stood at 61.7 percent of the country’s GDP, up from 50.2 percent at the end of 2015.
The country’s Parliamentary Budget Office – a technical unit that advises lawmakers on financial and economic matters – is on record as having warned that “debt repayment may be crowding out development expenditure”.
In Uganda, the debt could reach 50 percent of GDP at the end of June this year. This – according to Moody’s Investors Service – is up from 40 percent of the GDP in 2020, and 22 percent of the GDP in 2013.
The worry is on whether cutting back on expenditure, as well as raising taxes and borrowing further, would be the best approach to growth at a time when economies were still weak, experts say.