East Africa Nations Boost Budgets, Borrowing to Guard Growth

Kenya, Uganda and Tanzania boosted spending in their budgets for the next financial year as they seek to shield their economies from Europe’s debt crisis, adding to pressure on government debt and borrowing costs.

Kenyan Finance Minister Robinson Githae yesterday raised spending by 25 percent in the year through June 2013 and increased the target for the budget deficit to 6.5 percent of gross domestic product from 4.3 percent previously. Uganda and Tanzania plan to boost state expenditure by 12 percent each, while Rwanda will lift its budget by 16 percent.

The four nations, members of the East African Community, are investing in roads, power plants and railways to bolster economic growth and offset the impact of a possible recession in Europe, East Africa’s main trading partner. That may force governments to increase bond sales and seek alternative funding sources.

“By spending more, fiscal authorities are taking out insurance, as they have concerns about the global slowdown,” Stuart Culverhouse, chief economist at investment bank Exotix Ltd., said by phone from London. “If there is an increased supply of debt offerings, that will drive up yields and put further pressure on their budgets to service that debt.”

The East African Community has a combined gross domestic product of $79.2 billion and a population of 133.1 million people. The five-nation group includes Burundi.

Unsustainable Deficit

Kenya’s budget will reach 1.5 trillion shillings ($17.7 billion) in 2012-2013 as the government prepared to hold elections in March, pays for 10,000 more teachers and boosts security. Borrowing on the domestic market will climb 72 percent to 106.7 billion shillings next year, Githae said in a speech to Parliament in the capital, Nairobi yesterday.

“At 6.5 percent of GDP, the deficit in Kenya is not sustainable going forward and will clearly have to go down in the coming years,” Phumelele Mbiyo, an analyst at Standard Bank Group Ltd. in Nairobi, said in a phone interview.

Kenya will raise 143.6 billion shillings from external sources, Githae said. Revenue is forecast to increase 19 percent, helping to finance rising spending, he said.

The yield on Kenya’s 91-day Treasury bill rose for the second consecutive sale yesterday, jumping to 10.537 percent from 9.801 percent the previous week. Uganda’s three-month borrowing costs increased to 18.546 percent yesterday from 17.978 percent at the previous auction. The yield on Tanzania’s 91-day Treasury bill was at 13.47 percent at the last auction on June 6.

Kenya’s shilling extended gains for a third day, rising 0.2 percent to 84.80 per dollar by 9:27 a.m. Uganda’s currency fell for a third day, dropping 0.4 percent to 2,506.25 per dollar, and Tanzania’s shilling gained less than 0.1 percent to 1,584.

Slowing Growth

State revenue in Uganda is expected to climb to 11.2 trillion Ugandan shillings ($4.5 billion) in the year through June 2013, with a quarter of that coming from donor aid, Finance Minister Maria Kiwanuka told lawmakers yesterday in Kampala.

Uganda’s economy may struggle to recover after growth slowed to a 25-year low of 3.2 percent this fiscal year, President Yoweri Museveni said in Kampala yesterday. Uganda is set to start pumping its first crude oil later this year.

Tanzania, Africa’s third-largest gold producer, will boost domestic borrowing by a third to 1.6 trillion Tanzanian shillings ($1 billion), Finance Minister William Mgimwa told parliament in the capital, Dodoma. Government spending is forecast to reach 15.1 trillion shillings in 2012-13.

Rwanda will increase spending to 1.4 trillion francs ($2.3 billion) in the year through June 2013 as it invests in electricity, road and technology projects, according to the Finance Ministry. A slowdown in Europe will probably curb export earnings, slowing economic growth to 7.7 percent this year from 8.6 percent in 2011.

Burundi announced its budget in December for the 2012 calendar year.

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