The East African countries have been grappling with similar challenges but have opted for different solutions, a report has noted.
According to a study by ApexAfrica Capital Limited, the opportunities for economic growth in these countries lie largely in public sector investment in infrastructure.
“All countries are trying to raise domestic revenues to plug the fiscal deficit as well as lower the need for debt financing. The East African countries are striving to amend their tax-laws to raise revenue. Additionally Kenya is pushing for PPP financing in its projects given its relatively high public debt to GDP ratio,” the report reads in part.
In Kenya, the report states, higher government spending has been linked to lower unemployment while indirectly spurring activity in the private sector.
“However, a large portion of this spending is financed by debt, which has increased the country’s indebtedness while also crowding out the private sector. Data from the Kenya National Bureau of Statistics (KNBS) shows that public debt reached an all-time high of KES 4.5T in October 2017, sending the country’s debt-to-GDP ratio to 57.1% in 2017, compared to 39.8% in 2012. Increased infrastructure spending and a larger budget deficit are key factors attributable to the increased uptake in public debt.” Says the report adding that going forward, public debt is expected to continue to rise over the medium term.
ApexAfrica Capital therefore projects that upcoming infrastructure projects and an expected shortfall in revenue is expected to send Kenya’s debt-to-GDP ratio to c.60.0% in the 2018/2019 fiscal year.
In Uganda, states the study, Capital expenditure is budgeted to rise 11.0% y/y to UGX 4.0T in the current fiscal year. According to Treasury estimates, this will account for 13.0% of the total budget. Targeting middle-income status, the government is striving to attain higher economic growth rates. The development strategy is focused on addressing infrastructure bottlenecks by building hydropower plants and modern road & railway networks.
“Given that the large projects are being financed through debt financing, public debt may rise to a peak of 41.2% of GDP in 2020/21, from 38.6% in 2016/17. Fiscal consolidation and enhanced revenue collection may see the country increase government financing of projects, leaving the debts levels sustainable.” It states.
The study indicates that Economic growth for 2016/17 in Tanzania is estimated at 6.0%, which is lower than earlier forecasts of 7.0%. This was attributed to dented credit availability and slow budget implementation.
“Tanzania’s economy is projected to rebound, recording growth rates above 6.0%. The Government has lined up a number of mega projects; anticipated to raise its capital expenditure. Tanzania’s industrialization strategy seeks to capitalize on the country’s comparative advantages which may increase employment opportunities for its growing populous.” The report states adding that economic growth will be supported by continued improvement in electricity supply, mainly from natural gas. The BOT plans to initiate an interest based policy by 1Q18 aimed at availing cheap credit; aiding private sector investment.
For Rwanda however, total final consumption and government expenditure increased while household final expenditure decreased.
“It is anticipated that GDP growth will be in the range of 6.0% to 7.0% in 2018, due to an improvement in the agricultural sector from food crops, expected recovery of prices for traditional exports, increased mining sector activity and increased public spending.” The report projects.
“Trade deficit down 21.0% y/y. Rwanda’s trade deficit plunged 21.0% y/y to USD 953.8M by December 2017. This was due to a 53.7% y/y increase in exports and a corresponding 1.4% y/y decrease in imports. This is largely attributed to the, “Made in Rwanda Campaign”, an initiative by the government that promotes consumption of locally- produced goods and services. The current account deficit is projected to stand at USD 1.2B (12.6% of GDP) due to increased dependence on imports as measures to promote exports and imports substitution take time to effect” it adds.