EAC’s big economies to borrow $12b to plug deficits amid rising public debt

Finance ministers (from left): Kenya's Henry Rotich, Tanzania's Philip Mpango, Uganda's Matia Kassaija, and Rwanda's Uzziel Ndagijimana holding their budget briefcase. The ministers presented the governments' spending plans to their respective parliaments on June 14, 2018. PHOTOS | NMG 

In Summary

• Kenya has a deficit of $5.58 billion, while Tanzania has a $4.6 billion hole and Uganda $2.4 billion, with a huge chunk of funds to bridge the gap expected to come from external financiers.
• The new budgets offer little hope that the EAC governments will dig themselves out of the deepening debt hole.
• While across EAC, public debt has been increasing faster since 2012, the risk of debt distress remains low, excluding Burundi and South Sudan.

By ALLAN OLINGO
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Kenya, Tanzania and Uganda plan to borrow more than $12 billion to plug budget deficits in the new financial year, even as their public debt continues to rise, amid concerns of future sustainability.

Kenya has a deficit of $5.58 billion, while Tanzania has a $4.6 billion hole and Uganda $2.4 billion, with a huge chunk of funds to bridge the gap expected to come from external financiers.

Kenya

While presenting the budget statement for the 2018/19 year, Kenya’s National Treasury Cabinet Secretary Henry Rotich said that $2.87 billion will be sourced from foreign lenders while $2.71 billion will be borrowed locally.

In his budget highlights, Mr Rotich cited project loans of $2.35 billion, commercial financing of $2.98 billion, programme support of $250 million, foreign payments 2.5 billion and net domestic financing $2.7 billion in his schedule to meet the budget shortfall.

Kenya’s public debt has hit $50 billion, pushed by external borrowing, which saw the total outstanding foreign debt rise to $25.63 billion at the end of February this year. The country’s domestic debt as at the end of May had risen to $24.48 billion.

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This increasing debt burden means that the country will in this financial year face steep debt servicing obligations, including interest and principal repayments. In his budget statement, Mr Rotich said that the country will be facing $2.5 billion in net foreign repayment obligations this year.

Genghis Capital, an investment bank, in its recent analysis said it expected Nairobi’s interest payments in the 2018/19 fiscal year to grow by 31.11 per cent to $3.9 billion while redemptions will increase 36.7 per cent to $4.7 billion.

“The external debt redemptions will feature significant maturities in Standard Chartered syndicated loan ($787 million) and 5-year debut International Sovereign Bond ($783 million). Overall, public debt redemptions will comprise 54.06 per cent of total public debt obligations in fiscal year 2018/19,” Genghis said.

But Mr Rotich said he planned to bring down the deficit progressively to ensure that our public debt remains sustainable.

“Under this fiscal consolidation plan, we project the fiscal deficit to narrow to 5.7 per cent of GDP in the FY 2018/19 from the estimated 7.2 per cent of GDP in the FY 2017/18 and further to around 3.0 per cent of GDP by FY 2021/22. As such, this will help stabilise the Net Present Value of debt to GDP ratio at below 50 per cent, which is well below the 74 per cent threshold considered to signal an unsustainable debt position,” he said.

Tanzania

Tanzania expects the new funds to help it push its infrastructure projects and will mostly come from multilateral lenders.

In his budget speech, Finance minister Dr Philip Mpango said that the country expects $1.17 billion from external loans and grants.

Dar es Salaam is proposing to borrow $2.54 billion from the domestic market and $2.01 billion from the external market. In the 2017/18 fiscal year, Dar borrowed $2.17 billion from the domestic market.

“Out of this amount, $1.8 billion was for rollover of matured Treasury Bills and bonds, and $364.5 million was for financing various development projects. Moreover, we borrowed from external sources $591.32 million. These funds have been allocated to various strategic development projects. Further, in May this year, we managed to secure non-concessional loan amounting to $494.96 million,” Dr Mpango said.

As at end of April this year, Tanzania’s public debt stood at $21.75 billion, a 13.4 per cent increase from $19.18 billion as at end of April 2017. Out of this stock, domestic debt was $6.15 billion and external debt was $15.59 billion equivalent to 71.71 per cent of the total debt.

“The increase was mainly due to the disbursement of outstanding loans from either concessional or non-concessional as well as accumulation of interest arrears of external debt particularly from Non-Paris Club Member countries where the we continue to negotiate for debt relief in accordance with the Paris Club agreed minutes,” Dr Mpango said, adding that despite the debt increasing, it was still sustainable.