{{East African states are concurrently presenting their Budgets of 2013/2014 financial year. }}
Rwanda’s Minister of Finance Amb. Claver Gatete will present the budget to an expectant public . Recently the minister hinted that government expenditure is expected to hit Frw1.6 trillion, up from over Frw1.4 trillion this year.
In 2012, 14 out of the 30 fastest growing economies in the world were in Sub-Saharan Africa. Overall, real GDP in the region grew at 5.1% in 2012 with over a third of countries growing at more than 6%.
With the exception of South Africa, economic activity in Sub-Saharan Africa has therefore managed to withstand contagion from the global economic slowdown in 2012, mainly supported by the benefits of sustained economic reforms, robust domestic demand due to rising incomes and to a lesser extent high commodity prices.
These factors are expected to sustain robust growth in the medium term, as the region attracts increased investment both from foreign as well as domestic sources.
Since the East African Community Treaty was signed in November 1999,significant progress has been made.
However, while a customs union and acommon market have already been established, further convergence is required to attain a functioning economic integration and ultimately a political federation.
But problems and challenges in each of the five EAC member states are not identical and further integration will require firm commitmentsof all parties involved.
{{Rwanda }}
Rwanda’s economy grew at close to 6 percent over the last two years. The economic outlook continues to be robust with an expected growth rate of 5.4% in 2012/13.
This strong growth performance was underscored by successful reforms in both public financial management and in the business environment. Rwanda currently ranks third among Sub-Saharan African economies in the World Bank’s Doing Business Index and eighth world wide when it comes to ease of starting a new business.
More recently, however, several bilateral and multilateral donors have delayed substantial amounts of foreign aid to the country.
Rwanda’s high dependence on foreign aid (approximately 13% of GDP in FY2011/12) makes it Vulnerable to aid shocks.
While the Government appears to have successfully postponed some spending to later this year, the IMF estimates that more prolonged delays could lower growth by 1.5%age points of GDP in 2013.
Rwandan authorities are therefore seeking to increase other sources of financing which do not involve foreign aid.
A Eurobond issued in April this year raised USD 400 million from international capital markets. These proceeds will be partly used for on-lending to a number of enterprises, such as Rwandair, and to finance the completion of Kigali Convention Centre.
Moreover, the Government has established a solidarity fund, which solicits voluntary contributions from Rwandans at home and abroad.
Finally, a number of tax policy reforms to support revenue mobilization are being considered. Many of these reforms will however not be immediate.
The fiscal deficit after grants for FY2012/13 is therefore expected to be the largest in the EAC region amounting to 6.9% of GDP and to fall in FY2013/14 to2.9.
The reduction in official aid transfers has put downward pressure on the Rwandan Franc. Monetary policy has thus recently tightened due to the risks of an inflationary pass-through of an exchange rate depreciation and rapid credit growth to the private sector.
Gross foreign reserves are also expected to fall from 5.2 months worth of imports to 4.6 (albeit sill considerably higher than in the most other EAC member states) as authorities smooth out foreign exchange volatility in response to lower aid transfers to the country.
{{Kenya}}
The successful conclusion of the Kenya economy removed the key risk to the economy, which is expected to grow at 5.3 % in FY2012/13.
With the smooth political transition following the elections, Kenya’s GDP growth is expected to accelerate to 6.1% in FY2013/14 and 6.5% inFY2014/15.
In addition, FDI inflows into the country have been strong during the past year, which will be further boosted by the recent discovery of oil in the northern Turkana region. This discovery has made Kenya a major venue for oil exploration within East Africa.
The consequential increase in imports of capital-goods for oil exploration, however, may offset some of the recent improvements in the current account balance. Oil production is expected to start in 6-7 years.
In recent years, the Kenyan authorities embarked on a fiscal consolidation exercise by increasing domestic revenue and pursuing a primary balance of 2percent of GDP. In FY2012/13, a new tax on financial transfer fees, including mobile money, was introduced.
Additionally, a new VAT Act is currently being debated in Parliament which is expected to increase tax revenue. These efforts have already led to a reduction in the debt-to-GDP ratio, which is expected to fall to 43.7 by the end of 2012/13.
Monetary policy has led a gradual reduction in the central bank’s policy rate, as inflationary pressures have eased from the spike in FY2011/12 which affected the majority of countries in the region.
The build up of an external buffer through international reserves was slightly more moderate than in earlier years, as the Central Bank of Kenya was forced to intervene to contain depreciation pressures in the months preceding the election. Gross reserves are nevertheless expected to reach 3.8months worth of imports.
{{Tanzania }}
The Tanzanian economy continues to perform strongly and has been achieving the highest growth rates in the EAC region over the past two years.
Projections confirm that this trend is likely to continue with real GDP growth expected to reach 6.7 and 7.0% in FY2012/13 and 2013/14, respectively.
The restoration of power supply, which had suffered severely due to a reduction in the hydropower generation capacity following low water levels in Tanzania’s dams, will contribute to achieving these expectations.
However, a majority of the new power generation capacity is fuel-based, which has led to a widening current account deficit due to increased oil and gas imports.
In addition, the government company in charge of electricity supplies has faced financial difficulties, as thermal power generation has led to a substantial increase in the cost of electricity provision.
This poses a fiscal challenge to the government’s budget, which the authorities aim to address through the construction of a new large natural gas pipeline and several gas-operated power plants.
This explains why the government’s debt-to-GDP ratio has remained comparatively higher than in other EAC countries, particularly as it aims to borrow over USD 2.5 billion on non-concessional terms.
While most of these resources will be contracted through loans, Tanzania has recently been the first country in Sub-Saharan Africa to place a Floating Rate Note (FRN), which has raised USD 600million directly from international capital markets.
The FNR allowed Tanzania to raise a large amount of financing in a very short period of time, allowing it to avoid the pitfalls of approaching the loan market, which is not deep enough to provide such large amounts of financing out to 7 years, and the requirements of the Eurobond market, which requires ratings and listings and would take a significant amount of time to execute.
In addition to increased and more diversified sources of financing, Tanzania is also working towards mobilizing additional resources through enhanced tax efforts, which are embedded in the recently approved Finance Act 2012 and in a new VAT Bill which is currently being prepared.
At 11.4, inflation will be higher in Tanzania than in the rest of the EAC in2012/13. Unlike Kenya and Uganda, Tanzania did not fight inflation as aggressively and as quickly during the inflationary spike of 2011.
As a consequence of delayed actions, the current monetary and fiscal policy stances are tighter than elsewhere in the EAC. The fiscal deficit after grants is projected to be 5.5 of GDP in FY2012/13.
{{Burundi }}
Burundi has faced the confluence of several adverse economic shocks, which have subdued economic activity in the country. As a result, growth is projected at 4.5% in 2013, relatively lower than in any other EAC country.
As a small and landlocked country, Burundi is particularly vulnerable to spikes in global food and fuel prices. High food and fuel prices in 2012 led to a sharp deterioration of the terms of trade and to surging inflation, reaching almost 18 percent for the year.
Aid inflows were lower than expected, adding further pressure on the exchange rate. In addition, Burundi had to cope with the repatriation of 35,000 refugees from Tanzania as well as with spillovers from the conflict in Eastern Congo.
Fiscal policy efforts have centered on sustaining revenue mobilization in this adverse environment and implementing measures to widen the tax base. To this end, income tax, tax procedures and VAT laws, were recently adopted by the Government.
At the same time, the country is pursuing efforts to increase its debt management capacities. This is particularly important as a recent Debt Sustainability Analysis showed that Burundi is at high risk of debt distress. The country is also in the process of developing a solid legal framework for Public Private Partnerships (PPP).
The monetary policy stance was tight given the high inflation experienced during 2012. The combination of tighter monetary policy and falling food and fuel prices in2013, are expected to ease inflationary pressures. Inflation is therefore projected to fall to 9.5 in 2013.
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