Regional governments focus on debt repayment
Left to right: State Minister for Privatisation and Investment Evelyn Anite, State Minster of Finance - General Duties Henry Musasizi, Finance Minister Matia Kasaija, State Minister of Finance for Planning Amos Lugolobi and State Minister for Microfinance Haruna Kasolo at Kololo Ceremonial Grounds yesterday. PHOTO | DAVID LUBOWA
What you need to know:
- Uganda’s budget, for instance, allocates 30 percent of its revenue to debt servicing, while Kenya’s debt servicing costs exceed its healthcare spending.
East African citizens have a hefty load on their heads as their governments plan to heavily rely on refinancing their budget priorities on debt.
The regional countries’ debt, totalling more than $150 billion (about Shs561 trillion) combined, with each country’s debt-to-GDP ratio exceeding 50 percent, has raised concerns about its sustainability, with many member states struggling to meet their obligations.
Uganda’s budget, for instance, allocates 30 percent of its revenue to debt servicing, while Kenya’s debt servicing costs exceed its healthcare spending.
South Sudan has the highest debt-to-GDP ratio, at 65.4 percent, followed by Burundi at 60.8 percent.
Worse still, the region’s debt burden is further complicated by rising interest rates, currency fluctuations, and dwindling foreign exchange reserves.
The World Bank estimates that the EAC’s debt burden will continue to grow, reaching $200 billion (about Shs748 trillion) by 2025.
As the debt burden continues to grow, critics argue that governments must address the root causes of debt accumulation and prioritise fiscal discipline to ensure economic stability.
As the East African countries seek to refinance their debts, they must also re-examine their relationship with these institutions and prioritise sustainable economic development over short-term financial fixes.
In Uganda, public debt entered a new financial standing at more than Shs95 trillion ($25.3b). Of this, the country’s external debt of $7.1b (about Shs27 trillion) and $11.3 b (Shs42.2 trillion) is domestic.
The region’s economic power, Kenya’s current debt stands at 68 percent of GDP for 2023/24 and is expected to fall to 64.8 percent in 2024/25, according to the World Bank.
The East African nation sold a $1.5 billion (Shs5.6 trillion) international bond in February at a premium to fund the buyback of a large portion of a $2 billion (Shs7.4 trillion) bond maturing in June.
Tanzania, the region’s second-largest economy’s debt was in May this year projected to continuously increase between 2024 and 2029 by in total $17.8b (about Shs67 trillion).
Mr Aly Khan Satchu, a renowned EAC economic expert based in Kenya, sharing his thoughts about the regional government’s spending, said: “EAC Governments remain constrained by very heavy debt loads whose ROI to date has proven difficult to meaningfully discern.”
Therefore, debt payments will take a large slug of revenues and maintain pressure on spending.
“In most cases, expensive recurrent government spending (on a ratio basis versus revenues), means the available resource envelope is diminished,” Mr Satchu added.
He added that, Kenya is the most constrained but has received outstanding multilateral support as the West seeks to raise Kenya back into its orbit.
The overarching issue is to return to faster growth.
He, however, said: “Squeezing the taxpayer in a low growth environment is a sub-optimal strategy and remains a challenge for EAC governments.”
He warned that the Laffer curve is a thing, yet sadly policymakers seem ignorant of the same.
Regional envelop 2024/2025
Uganda’s resource envelope amidst controversies was hiked from Shs54 trillion to Shs72.1 trillion, indicating a Shs18 trillion increase from FY 2023/2024.
Finance minister Matia Kasaija, while presenting the budget yesterday in Kampala, said: “Domestic revenues amount to Shs31.9t, of which Shs29.3t will be tax revenue and Shs2.6t will be non-tax revenue.”
He added that budget support will be Shs1.39t and domestic borrowing will be Shs8.9t plus Shs7.7t to be spent on treasury bonds for settlement of government outstanding obligations to Bank of Uganda as of June 30, 2024.
Mr Kasaija said as of the end of December 2023, Uganda’s total public debt stood at Shs93.38t, equivalent to $24.69b. Of this amount, external debt was Shs55.37t equivalent to $14.64b while domestic debt was Shs38.01t equivalent to $10.05b.
“The public debt is projected at Shs97.6t, equivalent to $25.716b by June 30, 2024,” he said.
The regional budgets were simultaneously read by the finance ministers of Uganda, Kenya, Tanzania and Rwanda, in accordance to the EAC protocol, yesterday.
In Kenya, Mr William Ruto’s government is seeking to reduce budget deficit in its Ksh4.2 trillion (about Shs121 trillion) 2024/2025 financial year.
In there, Kenyan citizens will have to pay the government debt, which has been increased to Kshs597b (about Shs17 trillion) up from Ksh514.7b (about Shs15 trillion).
Tanzania’s budget for the next financial year stands at TZS49.346 trillion (about Shs70.2 trillion), representing an 11.2 percent increase from the current year’s Shs44.4 trillion (about Shs63.1 trillion).
Tanzania’s Finance Minister Mwigulu Nchemba will be injected towards strategic infrastructure projects, social services, and preparations for the 2024 local government elections and the 2025 general election.
Regional budgets
Uganda: Shs72.136 trillion
Kenya: Kshs4.2t (about Shs121 trillion)
Tshs49.346 trillion (about Shs70.2 trillion)
Rwanda: RWF4.2t (about Shs11.7 trillion)
South Sudan: SSP1.4 trillion (about 40.1 trillion)
Burundi: BIF3.4t (about Shs4.3 trillion)
