East Africa: EAC Projected Growth Rates a Mirage Due to Debt, Deficits

East Africa’s economic landscape is replete with contradictions: While it is cited as being ahead in economic growth in sub-Saharan Africa with its GDP projected to expand by 6.1 per cent against a continental average of 3.6 per cent in 2020, the region is swimming in tough economic times.

Across the region, analysts caution that economic growth is largely superficial since it is being driven by public infrastructure investments as opposed to being private sector-driven.

"Rising debt servicing costs against a backdrop of sluggish revenue growth will limit governments’ capacity to stimulate economic activity and/or worsen fiscal balances, posing downside risks to investor sentiment," said a Fitch Solutions report released in December.

Analysts at the Institute of Chartered Accountants in England and Wales (ICAEW) project a slowdown in the region’s economic growth to 6.1 per cent in 2020 from 6.3 per cent in 2019.

EAC countries are therefore facing another challenging year of balancing budgetary books amid the burdens of servicing public debts, failure to meet revenue targets driven by a slugging private sector, shedding of jobs, flattening FDIs and declining volumes of exports.

Across the region, over 40 per cent of revenues will be directed towards debt servicing at a time when the IMF is warning that debt across the region is gravitating towards unsustainable levels.

The new year finds the region saddled with debt to the tune of $100 billion, widening budget deficits and expanding current accounts, as governments undertake mega projects.

Kenya and Tanzania’s total public debts as at June 2019 stood at $58.1 billion and $22.5 billion respectively, while Uganda’s stock of public loans was $12 billion and Rwanda’s $5.4 billion.

Across the region, key sectors of the economy like agriculture, tourism, building and construction and transport are underperforming while manufacturing has slowed down and intraregional trade is on a decline precipitated by both tariff and non-tariff barriers among the EAC member states.

With traditional exports declining and imports receipts rising, putting pressure on the current account, remittances are emerging as the main source of foreign exchange.

In Tanzania, analysts at Fitch Solutions are forecasting a sluggish year for the economy, a situation that could be compounded by national elections in October.In 2020, Tanzania’s economy is projected to grow at 5.3 per cent, way below a 10-year average of 6.3 per cent registered between 2007 and 2017 on the backdrop of weak investment, poor agricultural harvest and challenging global macroeconomic headwinds."Private consumption and government fiscal […]

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