Jump to navigation

Kenya

East Africa aims to spend its way out of the pandemic recession

Regional recovery plan depends on more borrowing and tougher tax enforcement

Budget day on 10 June in East Africa meant 'borrowing', as the region's three biggest economies unveiled their tax and spending plans for the coming fiscal year. All are planning to fuel an economic revival with borrowing in a coordinated piece of Keynesian expansion (AC Vol 61 No 13, Rose-tinted budgets).

Kenya, Tanzania and Uganda plan to borrow at least US$16 billion as part of their budget plans, fuelled by both domestic and external borrowing. Addressing growing debt burdens, which are already causing particular concern in Kenya, will have to wait until after the coronavirus pandemic. And with signs of a third wave hitting Uganda, combined with painfully slow distribution of vaccines across Africa, the post-pandemic economy could be a long time coming.

Of the three, Tanzania's public finances are in the best shape after recording 4.8% growth in the first year of the pandemic. Finance Minister Mwigulu Nchemba and the Treasury forecast that Tanzania's fiscal deficit will fall from to 1.8% from 2.6% on the strength of a 5.6% economic growth rate driving a 9% increase in tax revenues. Nchemba is increasing public spending by a modest 4%. 

One new source of revenue will be a levy on mobile-money payments, which cash-strapped treasuries favour because it is so easy to administer, although it does nothing to reduce social inequities. Progressive income tax is unpopular with most of the political class in the region and is set at far lower levels than in the West. 

In Uganda, Finance Minister Amos Lugoloobi (yet to be confirmed in the post) plans to cut infrastructure spending and increase revenue by 15%. With a debt-to-GDP ratio nudging 50%, the government is facing a combination of budgetary and political pressure after the disputed election in January.

Kenya's treasury secretary, Ukur Yatani, plans to take a more expansionary route by hiking infrastructure spending on President Uhuru Kenyatta's Big Four projects, as part of a budget that forecasts only a small fall in the budget deficit from 8.7% to 7.5%. Like those of his neighbours, Yatani's budget is predicated on a hefty 13% increase in the tax take.

Many Kenyans are criticising the government's turbo-charged borrowing, with debt-service taking almost two thirds of state revenues this year and the trajectory for the three years to come looking tougher still (AC Vol 62 No 9, Don’t show us the money).

Regional economists have warned that there is little scope for significant spending cuts on infrastructure, even if ministers wanted to take that approach. There is logic to spending your way out of a recession, and the three countries forecast economic growth of between 4.3% and 6.6%, with Kenya set to recover fastest. 

All the governments in the region are relying on hugely boosting the tax take, mostly through indirect taxation, which hits the poorest hardest. Thanks to the political clout of the region's companies and their owners, governments tend not to favour increases in corporation tax or income tax.

Lacklustre economic conditions could force a change of course. In Kenya, fuel taxes continue to rise, hitting the country's lower middle class hardest. The treasury's repeated promises in recent years to tackle corporate tax exemptions have delivered little.



Related Articles

Rose-tinted budgets

Finance ministers promise economic growth and increased tax collection. But that doesn’t square with the reality

Optimism appears to be the name of the game as treasury ministers from Kenya, Tanzania and Uganda followed the recent practice of coordinating their 2020/21 budgets ahead of the ne...


Don’t show us the money

Kenyans worry that the government is leading donors on a familiar dance as it continues to increase borrowing

In the dog days of President Daniel arap Moi's reign, Kenya acquired a reputation for borrowing from the International Monetary Fund and other financial institutions after promisin...


This time a peaceful vote

After a decisive referendum, Kenyans have a constitution that will shake up both the political system and the party fiefdoms

Kenyans voted overwhelmingly for the new constitution at the 4 August referendum. The process was orderly and voters turned out in impressive numbers to voice strong support for th...


Counties at the crossroads

After three years of devolution, the jury is still out on whether it hasn't merely created more opportunities for corruption

In late April, new county governors broadcast their successes as they celebrated three years of devolved government at a three-day celebration in Meru County. Yet through the jubil...


Double war

Rebel massacres and party activists are shaking the National Resistance Movement's political dominance

As pressure mounts on President Yoweri Kaguta Museveni to leave power by 2006 at the end of his second elected term, both the military war in the north and the political war in the...