Exciting times in East Africa as countries reach Budget Day on shadow of key elections

These are exciting days in East Africa, although not precisely because of the World Cup (part of the excitement has nevertheless reached Tanzania after the controversial friendly match that saw Brazil beat the Taifa Stars 5 – 1). No, the excitement is mostly political and economic. First of all, all East African countries are looking forward to important events: in Burundi, the marathon election season that will last all summer has already began, and it is not free from problems; Rwanda is also scheduled for Presidential elections in August, and Kagame’s regime has come under international criticism recently . In Kenya, the preparations for August 4th constitutional referendum are underway, although some have voiced their fears over the transparency of the vote. Here’s an “A to Z of the referendum” by Bankelele on Mzalendo website. Later this year, in October, Tanzania is also holding elections – in which, despite the appearance of a new pary (Chama Cha Jamii
(CCJ))
, incumbent President Jakaya Kikwete is the clear favourite. Most attention in fact, will be on Zanzibar, where 2005 elections triggered violent confrontations, and where a recent agreement on a referendum for a unity government seeks to avoid precisely that. And in February next year, Uganda is holding Presidential elections, with Museveni seeking to renew his mandate, despite the opposition’s criticisms of the Electoral Comission, and warnings of chaos.
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Kizza Besigye addresses journalists at his party’s headquarters at Najjanankumbi in 2009. He has expressed concerns over the impartiality of Uganda’s Election Commission. Photo/FILE – Africa Review
As well as the preparations for all the elections, the region also faces other important challenges. One of this is the security situation on the Horn (this is, Somalia), whose increasing strategic importance has seen US vice-President Joe Biden embark on a three-day visit to Kenya that ended yesterday. Also, there is the dispute over the Nile waters, and the ongoing situation in Sudan where, as preparations for the 2011 secesion referendum for South Sudan continue, President Bashir is still wanted by the ICC, who has asked Uganda to arrest him if he attends the African Union summit that will take place in Kampala in July, and to which he’s been invited. And all these countries continue the process of regional integration, with the latest step being on the labour market, where from July 1st, no work permit will be needed for a citizen of a country to work on another.
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Uhuru Kenyatta outside Treasury before the budget speech last year. Photo/LIZ MUTHONI / The East African
Amid all of this, today is Budget Day, with all five East African countries presenting their budgets for 2011 this week. A Budget Day marked both by the national and regional contexts (most notably the forthcoming electoral dates) and by the international economic environment, which is severely affecting other parts of the world (especially Europe), but not so East Africa. The optimistis predictions for these countires’ economies, together with the proximity of key electoral dates will, according to this East African article, promote the “populism” of these budgets as “no finance minister is ready to wean their country of the stimulus cash, especially now that their bosses and themselves are heading for elections”. In Tanzania also, the proximity of election has seen the time allocated in Parliament for debating the buget shrink from the usual 8-12 weeks to only five, among opposition and activists criticisms. You can follow the budget debate via Twitter, from Zitto Kabwe MP. In Kenya, Finanace Minister Uhuru Kenyatta will unveil later today a budget that will amount to a trillion shillings for the first time (Sh110 billion larger than last year), but that would leave a Sh223 billion financing gap.
How these financing gaps are to be solved in East Africa is perhaps the most interesting development. For those of us in Europe, news all around are about spending cuts and reducing the governments’ deficits (radical austerity measures have been anounced not only in Spain and Portugal, but also Germany, France and the U.K). The optimist predictions for East African economies – which also need to continue their investment level on infrastructures – together with the development aid reduction that will follow from European countries’ spending reduction, is moving these countries to seek funding from financial markets. A Bloomberg article published yesterday makes some interesting considerations regarding these new funding opportunities, and what the risks may be:

“We gradually want to get rid of the donor dependency syndrome,” Mkulo (Tanzania’s Finanace Minister) said on June 2. The government plans to cut foreign loans and grants to about 25 percent of fiscal spending in the year through June 2011, from 39 percent this year, he said.
Uganda expects budget support grants and loans to drop to 790 billion shillings ($345 million) next fiscal year from 1.06 trillion this year, according to a draft budget issued on May 21.
Kenya, the biggest economy in the region, revived a plan this year to sell an international bond of $500 million to fund renewable energy projects. Tanzania also plans to raise the same amount in a Eurobond sale in 2010-11, Mkulo said on Jan. 28. Uganda’s central bank Governor Emmanuel Tumusiime-Mutebile has said the country is unlikely to sell bonds abroad.
“Deficits have crept up gradually and in Uganda and Tanzania there’s been a decline in donor aid,” David Cowan, a sub-Saharan Africa analyst at Citigroup Inc., said by phone from London yesterday. “A trend we’ll see in all three budgets is significant deficits and how they plan to finance that.”
Government debt levels are low enough to give the three countries room to seek external funding. Kenya’s government debt was 44.7 percent of GDP at the end of last year, Tanzania’s was 37.1 percent and Uganda’s was 22.2 percent, said Cowan.
“Kenya can still borrow to finance growth,” Nikhil Hira, head of tax at Deloitte LLP’s East Africa unit, said in an interview in Kenya’s capital, Nairobi, yesterday.
The European debt crisis, which has reduced investors’ appetite for riskier assets, may affect the timing of borrowing abroad. Kenya’s shilling dropped 5.3 percent against the dollar in the first five months of the year, Uganda’s currency plunged 14 percent and Tanzania’s shilling fell 7.4 percent.

It is clear therefore that these are interesting times for East Africa. The need for continued spending to sustain growth rates may move these countries to find alternative sources of funding on the face of reduced development aid. That this may come from financial markets may indeed lead to decreased “donor dependency”, which is indeed a very positive thing. At the same time, and as European countries are seeing, excessive budget deficit may make your country’s less apealing, and may contribute to increasing indebtedness. I am no expert on all these economic matters, so I would welcome comments from more knowlegeable people and East African citizens on wether these countries’ move to financial market is a good or a bad thing. Can this increased borrowing lead to a debt crisis like it did in the 1970s and 1980s? Or is the international economic environment changing so much in favour of emerging economies that all the problems investors see in Europe may move them to see East African economies as a safe investment?

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