The economic and social prosperity of 130 million people in the East African region - minus those of Burundi - would be affected by how four countries, namely Tanzania, Kenya, Uganda and Rwanda, implement their combined $34 billion budget.
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 per cent to Ksh1.46 trillion shillings, while Tanzania's, ranked number two, rose by 11 per cent to Tsh15.12-trillion.
Uganda, the region's third biggest economy, raised spending by 16.7 per cent to Ush11.2 trillion.
Inflation, unreliable power supply, acute food shortage, high lending rates and growing unemployment among youths are among the key challenges which the four East African countries promised to tackle during the 2012/2013 budget.
The four East African countries on Thursday presented $33.935 billion (Tsh53.617 trillion) for their 2012/13 budget—with education, roads, electricity and railways getting the biggest chunk of the budget.
But, Tanzania and Rwanda still depend heavily on donors as Kenya and Uganda finance their budgets by between 86 and 76 per cent through domestic revenue sources.
According to the budget speeches made available to The Guardian, Kenya’s budget for 2012/13 will cost $17.682 billion, while Tanzania’s will spend $9.493 billion, followed by Uganda’s $4 billion, followed by Rwanda’s $2.76 billion.
While Tanzania’s Finance minister Dr William Mgimwa tabled a $9.493 billion (Tsh15 trillion) budget in which he allocated a whopping $315 million (Tsh498.9 billion) to improve electricity production and supply, his Kenyan counterpart, Njeru Githae, presented a $17.682(Tsh27.939 trillion) budget in which education got the biggest chunk amounting to $2.841 billion (Tsh4.489 trillion).
The amount Kenya allocated to the education sector is equal to 29.93 per cent of Tanzania’s budget, 60 per cent of Uganda’s budget and bigger than Rwanda’s total budget.
In Uganda, Finance minister Maria Kiwanuka allocated a bigger percentage of the 2012/13 budget to roads, agriculture and education sectors - with education taking the biggest chunk amounting to $539 million (Sh851.750 billion).
Unlike Tanzania where the budget is financed by donors by 42 per cent, the 2012/13 Uganda budget will be financed by domestic resources. Presenting the budget speech to Parliament on Thursday afternoon, Finance minister Maria Kiwanuka said only 24.5 per cent will be provided by development partners. This represents a notable rise in domestic financing of the national budget.
Kenya will finance its budget through domestic revenue sources by 86 per cent, leaving heavy donor dependence to Tanzania, Rwanda and Burundi.
Rwanda’s Finance minister John Rwangombwa on Thursday announced some changes in the tax regime as the Treasury increasingly seeks to raise domestic revenues to meet its increasing expenditure amidst budget constraints.
Presenting the budget in Parliament, Rwangombwa said domestic resources would finance 52.4 per cent of Rwanda’s total expenditure and net lending in the fiscal year 2012/2013, as against 47.3 per cent in 2011/2012. This means Rwanda will still depend on donors by 47.6 per cent.
Over the last 12 years, Rwanda has significantly reduced its dependence on donor aid from 85 per cent of total budget to 46 per cent. The country continues to rely on international development partners though. Rwangombwa says that whilst for many years Rwanda’s traditional sources of external support had been budgetary grants, the country has, starting from 2011/2012 fiscal year, become eligible to receive budgetary loans.
“This was due to the fact that the international community has more confidence in Rwanda’s debt management capacity and has now classified it as a country with a moderate risk of debt distress,” the minister said.
This, according to Rwangombwa, implies that Rwanda is eligible to receive budget loans from the African Development Bank (AfDB) and the World Bank Group. Tanzania’s Finance minister Dr William Mgimwa allocated Tsh1.382 trillion ($874.68 million) to infrastructure development, including roads construction and reviving of the dilapidated railway transport sector - making infrastructure the biggest recipient of this year’s budget.
“Strengthening the central railway line, which involves renovation of the train engines and wagons will be a priority. On roads, priority projects include roads that will open up economic opportunities. On air and water transport, projects to be implemented include the rehabilitation of airports and the development of ports on Lake Tanganyika. A total of TShs 1,382.9 billion has been allocated to this area.” Dr Mgimwa said.
Another sector that received hefty funding, apart from electricity and transport, is water, which will get Sh 568.8 billion ($359 million).
Dr Mgiwa also revealed that during the 2011/12 financial year the Tanzanian government spent a total of Tsh296 billion to pay independent power producers as the country battled the worst power rationing.
The government also spent another Tsh289 billion ($183 million) to construct the 100MW power generating plant in Dar es Salaam and another 60MW plant in Mwanza
According to Dr Mgimwa, the government also spent shillings 27 billion to finance the purchase and distribution of 120,000 tonnes of maize to the market in order to mitigate food shortages in some areas.
Moreover, the government issued permits for the importation of 200,000 tonnes of sugar without paying import duty in order to address the shortage of sugar and its price increases.
To curb skyrocketing inflation, Tanzania raised the interest rate charged by the Bank of Tanzania to financial institutions from 7.58 per cent to 12.58 per cent. In addition, the government raised the rate of deposits, which commercial banks are obliged to keep with BoT from 20 per cent to 30 per cent.
According to Dr Mgimwa, these measures have helped to control inflation. However, the reality on the ground shows the opposite as many Tanzanians struggle with rising food and fuel prices, thanks to untamed inflation.
In the 2011/12 fiscal year the Tanzanian government also employed 25,000 primary and secondary schoolteachers, 4,499 agricultural and livestock extension officers and 4,499 medical specialists in the health sector.
But as Tanzania outlined some mesaures in increasing tax rates in various areas, Kenya left its tax regime unchanged.
Kenya’s Finance minister Githae on Thursday delivered the country’s budget which didn’t have tax surprises, but many welfare measures that would cost KSh1.45 trillion.
“We have taxed Kenyans almost to the limit. The only way we can increase revenue is by taxing those who have not been paying,” Githae told journalists immediately after reading the 2012-2013 budget in Parliament.
Githae set aside more money for hiring 10,000 extra teachers, 5,200 health workers and an extra 3,500 police officers.
The minister cut taxes on second-hand clothes, zero-rated duty on digital TV sets and removed tax on food supplements in an attempt to check the rising cost of living.
But landlords and tenants face tough times after the minister introduced new measures to rope them into the tax bracket to shore up revenues.
Kenya Revenue Authority (KRA) estimates it can collect about KSh90 billion (Tsh1.620 trillion) in rental income tax annually.
KRA had in 2005 announced plans to use bank accounts to start taxing landlords but the move fell apart after banks refused to cooperate. To appease low-income earners, the Kenyan government reverted to the old tax on second-hand clothes.
Traders will now pay KSh1.1million (Tsh19.8 million), down from KSh1.9 million, per 20ft container.
The increased tax has been an issue of contention between traders and the Kenya Revenue Authority (KRA), forcing a cutback on second-hand clothes imports.
But civil servants ranked among the biggest losers after the proposed KSh15.1 billion (Tsh270 billion) pension scheme was deferred to July 2013.
The delay means retiring civil servants will not benefit from the scheme, while those nearing the retirement age will get less in final dues.
To cushion local iron and steel manufacturers from cheaper imports, Githae imposed a 10 per cent import duty on galvanized wire.
In a bid to respond to increasing insecurity, Githae increased the allocation for national security from Sh78 billion to Sh83.5 billion.
And to solidify President Mwai Kibaki’s free primary education legacy, the Kenyan government allocated Sh233 billion ($2.841 billion) to the Ministry of Education - whereby half of this would be used to hire 10,000 more teachers and build new schools.
Kenya set aside KSh1.6billion (Tsh28 billion) for the employment of pre-primary schoolteachers.
The Kenyan government also allocated KSh1.1billion (Tsh19.8 billion) for bursaries for children from poor families.
Uganda’s theme for the 2012/13 budget is ‘Priorities for Renewed Economic Growth and Development’.
*Economic Performance: Fiscal policy will support monetary policy to maintain macro-economic stability while at the same time increasing resources available to address the binding constraints to growth. *Economic Growth: Uganda has faced both global and domestic economic challenges over the past year.
According to Finance minister Kiwanuka, Uganda’s real GDP growth is estimated at 3.2 per cent this financial year. “The slowdown in growth this financial year was due to drought, weaker demand for our exports, high international fuel prices, and imported inflation, coupled with the weak shilling due to a strong dollar globally.
“Growth in the services sector slowed to 3.1 per cent, with trade, financial, education and health services sector registering negative annual growth rates,” she said.
The growth in industrial production slowed to 1.1 per cent during the year. The hardest hit industrial subsector was formal manufacturing where growth contracted by 4.4 per cent.
The agricultural sector performed much better, recording an annual growth of 3.0 per cent. The hotel and restaurant subsector also rebounded, coupled with positive growth rates in transport and telecommunications, real estate and other business activities.
The Uganda shilling depreciated against major international currencies earlier in the financial year now ending. However, it has recently been more stable. The overall balance of payments was positive on account of increased inflows of remittances amounting to US$ 2 billion, foreign direct investments amounting to US$ 834 million, and portfolio flows amounting to US$ 274 billion.
Uganda’s economy faced high inflation, with prices rising over the early part of the financial year now ending. However, inflation was now on a declining trend. Annual inflation peaked at 30.5 per cent in October 2011 but declined to 18.6 per cent in May 2012.
According to Uganda’s Finance minister, food crop inflation that was 42.2 per cent in May 2011 declined to 8 per cent in May 2012.
Additional reporting by New Vision(Uganda), The Standard (Kenya) and New Times (Rwanda) newspapers.