Regional countries plan to go big on infrastructure spending

A Standard Gauge Railway (SGR) cargo train loaded with exclusive Maersk containers leaves the port of Mombasa on Friday on May 18, 2018. [Maarufu Mohamed/Standard]

East African countries plan to increase spending dramatically on infrastructure projects in budgets to be released today.

It’s not clear whether they can afford it. Kenya, Tanzania, Uganda, Rwanda and Burundi will unveil plans to fund the building of more roads, railways and power plants, as well as expand services such as healthcare and education, for the year starting July 1. In most cases, this will raise budget gaps as a percentage of gross domestic product, and increase borrowing requirements.

“There is a risk of rising fiscal deficits coming from the fact that many have ambitious revenue targets they may fail to meet,” said Tony Watima, a Nairobi-based independent economist.

Spending will probably climb about 10 per cent in Kenya in the next fiscal year, 17 per cent in Uganda and 11 per cent in Rwanda, while it will be broadly flat in Tanzania, the nations’ respective governments have said in forecasts.

While the governments forecast that revenue will increase by double digits next year, Kenya, Uganda and Tanzania all have plans to approach the debt markets to help raise the funds to finance their deficits.

In Kenya’s case, the nation will borrow about Sh607 billion ($6 billion) locally and internationally in 2019-20, according to Treasury Secretary Henry Rotich.

GDP in East Africa will probably expand 5.9 per cent in 2019 and 6.1 per cent in 2020, according to the African Development Bank, making it the fastest-growing region on the continent. Economic expansion in Kenya, Tanzania, Uganda, Rwanda and Burundi will average a combined 5.5 per cent for the next two to three years, Citigroup Inc Chief Economist for Africa David Cowan said Wednesday.

Kenya is implementing its so-called Big Four agenda, which will see the region’s largest economy hand over no less than 500,000 houses to first-time homeowners by June 2022, and develop more manufacturing, food production and health care to create jobs in a nation where unemployment is a sticking electoral issue.