East African economies raise spending, risks seen
Reuters
NAIROBI: The three main east African economies raised their spending plans for the 2012/13 fiscal year to fund key infrastructure sectors, but analysts faulted their finance ministers’ sunny dispositions on growth outlook and borrowing proposals.
Officials in Kenya, Uganda and Tanzania face the challenge of maintaining their recent economic growth rates — among the fastest in Africa — amid global economic uncertainties as well as high inflation and weak currencies at home.
Kenya, the region’s biggest economy, increased its budget by more than 20 percent to 1.46 trillion shillings ($17.10 billion), while Tanzania’s, ranked No.2, rose by 11 percent to 15.12 trillion shillings ($9.53 billion).
Uganda, the region’s third biggest economy, raised spending by 16.7 percent to 11.2 trillion shillings ($4.49 billion).
Finance ministers in the three countries said the jump in spending for the 2012/13 financial year which starts next month would be to fund planned investment in the construction of roads, railways and power plants to sustain economic growth.
“We must confront our challenges boldly and within our means. We have to do more with the limited resources at our disposal,” Kenya’s Finance Minister Robinson Githae said.
He maintained the 2012 growth forecast at 5.2 percent.
One analyst said Kenya could pay the price of that optimism, through a bigger budget deficit for the year, from the 6.5 percent of gross domestic product (GDP) set by Githae.
“We think the government’s projection of a 20 percent increase in spending and its 5.2 percent growth forecast are overly optimistic, and thus suggests that the budget deficit is likely to come in wider than projected,” said Yvonne Mhango, Sub Saharan Africa economist at Renaissance Capital.
Analysts fretted over the government’s plan to lean on external sources of finance to plug the deficit.
“The real question marks are over the plans for net foreign financing of the budget, 143.6 billion shillings or roughly 1.7 billion,” said Razia Khan, head of research for Africa at Standard Chartered.
Kenya’s economy grew by 4.4 percent last year, down from 5.8 percent in the previous year, according to official data.
Githae said he expected inflation, which has fallen for the last six months in a row, to continue on that trajectory, lowering pressure on commercial interest rates.
Tanzania trimmed its growth forecast for this year to 6.8 percent from 7 percent, citing energy shortages and drought.
Analysts criticized the budget, saying the government would borrow heavily to finance recurrent expenditure.
“The government has allocated just 30 percent of the budget on development spending, the rest of the money will go toward administrative costs of running the government. We need to invest more resources in production,” said Ibrahim Lipumba, leader of the opposition Civic United Front (CUF) party.
Maria Kiwanuka, the Ugandan finance minister proposed to raise taxes on people who earn more than 120 million shillings ($48,100) a year, while raising withholding tax for investment on government securities to 20 percent from 15 percent.
Traders said the move would put off foreign investors, a key source of hard currency for Africa’s largest coffee exporter that keeps the shilling from weakening steeply against the dollar, thus raising costs of imports.
“The new measure of escalating the tax on Treasury bonds and bills is ill-advised because it will hurt offshore investors who have been very crucial in supporting the shilling,” said Faisal Bukenya, head of market making at Barclays Uganda.
Rwanda’s budget deficit rose nearly 80 percent to 137.3 billion francs ($225 million) to fund infrastructure growth. The gap would be plugged by foreign loans and treasury bills sales.
East African economies raise spending, risks seen
