East Africa Economic Outlook : An ominous 2013

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By Rafayili Kayigwa 

For East African countries at least there is a lot today which would make the outlook for 2013 rather ominous. Per reports this week, other than Tanzania all other countries have not met their revenue collection targets. And we should remember that it is half way through the fiscal year for these countries.

Beginning with Uganda, the country’s tax body has not met its original target by USD 39million. And after the widely publicised corruption scandal involving the Office of the Prime Minister close to USD 260million in development aid was withdrawn. There seems to be no indication that this money shall be released at least in this fiscal year making the shortfall in revenue at least USD 300million or 810billion. This is about 8% of the budget.

A shortfall this big puts a lot of government programmes in jeopardy as there is need for prioritisation of monies to sectors the government feels it should fund without fail. The outlook is that the Government of Uganda is now preparing to use its pedigree as a sovereign to borrow from the contractors using contractor financing especially on most of its infrastructure programmes. A likely result that shall entail Ugandan users shall have to pay to use these roads.

Uganda last year posted one of the worst figures in 25 years with a GDP growth of only 3.4%. The donor aid cut is bound to hamper the growth prospects which had earlier been predicted. The central bank reckons it may cost the country as much as 0.7% off its earlier estimate of 4.2%. Much as the country has had improved macro-economic factors of reduced inflation the slowdown has hit the country badly and the illiquidity in the markets led to high interest rates which in turn led to increased non-performing assets. The banking industry shall be reporting its annual results in April but third quarter results show an industry average of bad loans increasing to 6% for 2012 from 1.3% in 2011.

Rwanda is also grappling with donor aid cuts for its alleged involvement with the M23 Rebel movement in the Eastern DRC. The cuts have undermined the country’s development programmes as its reliance on donor aid is much more compared to Uganda’s. Its budget is covered 40% by the donors and a cut in this contribution greatly undermines its set programmes.

 

Moves made by the government to stay the budget shocks include the stopping of hiring new people as well as a novel idea of asking the people of Rwanda to donate, yes donate, to it. And the donations have come pouring in with the government’s Agaciro Fund receiving up to USD 20million. This accounts for about 2% of the country’s budget requirements and of course seems paltry.

 

Kenya with one of its most expensive presidential and parliamentary elections coming soon in March is in much need of money to pay for the grand bill. However, the country’s tax body has not met its targets either with a shortfall of over USD 12million in the first half.

 

As part of plans to enable the government meets its most priority programmes, there are plans to retrench some of its employees which include teachers, doctors and other administrative civil servants. Unfortunately, the government has borrowed more than its planned to by 32billion Kenyan Shillings and as such cannot have borrowing from its highly developed money markets as a fall back option.

The outlook therefore of the East African countries is rather gloomy at least in regard to the administrators and other government employees scheduled to lose their jobs in Kenya and Rwanda. The private sector shall put under more pressure to pay up their tax obligations and this shall especially impact on the small enterprises’ viability to continue in business. And of course ultimately the greater population shall miss out on the stalled government projects which shall ever again impact on the ability and ease to do business in the community.

1 COMMENT

  1. I agree Mark, times are looking rather hard for the East African States. My only addition is that with the backdrop of shortfalls in revenue collection, we are now getting closer to the March General Elections in Kenya and their attendant issues.

    The threat of economic repercussions for the landlocked countries within the region that use Kenya’s Mombasa port has never been greater; you will recall the impact the last election had on the Ugandan economy and on the cost of even basic commodities like sugar and soap.

    We are in for some collective belt tightening!

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