Governments in East Africa will ask for debt relief and implement new tax measures to free up money to help their economies cope with the fallout from the coronavirus pandemic.
Finance ministers in Kenya, Uganda and Tanzania presented their budgets for the fiscal year that starts July 1, and while these three economies will continue to expand, growth will slow due to the pandemic and global and domestic measures to curb its spread. Even with revenue under pressure, spending will increase for all three countries.
The success of the budgets will all depend on Covid-19, according to Jibran Qureishi, Standard Bank Group’s head of research for Africa. “Authorities are keen to address deficiencies and raise capital expenditure for projects at the same time.”
It will be easier for Tanzania and Uganda to seek debt relief from the Group of 20 because they don’t have existing Eurobonds, Qureishi said. Kenya does and will have to postpone plans for fiscal consolidation while relying more on concessional loans.
Here are some of the measures that were announced:
Kenya
The region’s largest economy has lowered tax rates for corporate and personal income, turnover tax, value-added tax and provided tax relief to low income earners and employees. These measures will cost the government 172 billion shillings (US$1.62B) in lost revenue, Treasury Secretary Ukur Yatani said. To recoup some of that, Yatani announced proposals to lower the level of exemptions.
“Whereas these tax incentives are well intended, they have limited the capacity of government to fund critical expenditures,” he said.
The International Monetary Fund last month approved US$739M from its Rapid Credit Facility for Kenya.
Uganda
Uganda will clamp down on tax compliance and raise some levies to collect more revenue for the economy and also to boost local industries and protect them against cheap imports, Finance Minister Matia Kasaija said. The government expects economic growth of 4.5% in 2020-21 from an estimated 3.1% in the year ending June.
As Africa’s second-biggest coffee grower, agriculture makes up about a quarter of gross domestic product in the country that also produces tea and sugar. The government has decided to raise import duties on farming products to 60% and exempt the supply of agricultural products and processed milk from value-added tax.
The IMF approved US$491.5M for Uganda from its Rapid Credit Facility for its response to the pandemic last month.
Tanzania
Tanzania is seeking as much as US$272M from the IMF’s Rapid Credit Facility and is in talks with bilateral creditors for debt relief, according to Finance Minister Philip Mpango. The government, whose leader President John Magufuli has declared the country free of Covid-19, is also awaiting another $50 million from the African Development Bank.
Source: Bloomberg