EAC budgets paint a worrisome economic instability in short term

THE relationship between budget deficits and the health of the economies of EAC Partner States is certainly not perfect. It looks like all countries have decided to run a massive budget deficit; as explained by FY 2012/13 planned expenditure increment in productive sectors like infrastructure development. EAC Partner States have been running deficit budgets for quite a while. No country in this region has ever managed to plan within its means! Well, there are a number of reasons, justifiably so, which lead to this style of economic management. Most important though, is what have been the economic gains from this continuous run of budget deficits? Could the same results be attained without budget deficit? However, if one was to take a somewhat objective reading of the 2012/13 budget statements across EAC, you wouldn’t help but notice a number of gaps; over ambitions; mix-ups; strategic; focused; unfocused; and indeed a mix of all things! Now, you might be wondering! I am too. What on earth do all these things add up to? It’s like (-2+2)-(4-8) + (7+1)-(-8-4)*(2-4). We just pray that countries will end up making positive results. The 2012/13 expenditure plans in EAC have come against the backdrop of economic hardships experienced in 2011 and 2012, where each Partner State still has its own full plate of issues to handle. Nonetheless, Finance Ministers have come out, with courageous faces, packaged in equally bold statements, stating to contain and consolidate achievements registered so far in economic development of their respective countries. To fully understand the meaning of these bold statements, to understand the rationale behind the more planned resources for expenditure in FY 2012/13 when national revenue collections stood high chances of falling, then one needs to recognise the economic factors shaping the policy choices at regional and global level. Almost all EAC Partner States depend largely on donor resources to finance their development programmes. This dependency is recorded at an average rate of about 40%-50% - of entire budgets. The donor funds come in form of grants; concession loans; and loans in foreign converted currencies. The region also depends, for its energy sources-specifically petroleum, on 100% importations. The markets of petroleum products of recent have been volatile and as such very unpredictable. Indeed the EAC Partner States continue to run a negative balance of trade (importation costs overrunning export earnings!). To add on the above, recent developments in Europe are worthy of a note. Some European Union members are experiencing difficult economic situations, with huge potential to undermine the Union or calling up for massive financial resources as rescue plans. The development in USA campaigns and subsequent elections is another factor which will possibly influence the world markets through the flow of finances that normally come to EAC Partner States. All factors mentioned above (and others not mentioned) are beyond the control of national governments. Variations of petroleum prices directly and easily affect our economies. If the crisis in Europe is to worsen, flow of funds, both grants and loans from Europe will dwindle! I hope the donor commitments for FY 2012/13 will not change. Based on unpredictable situations, almost all EAC Partner States presented budget plans which commit massive expenditures significantly overshooting the expected national revenues. This, combined with not so good performing domestic economies, as indicated by registered shortfalls in revenue collections, almost in all countries, has left the Ministers of Finance with no better choice but to dig deep in the local markets to generate more revenues. All the countries astoundingly increased their budgets, significantly so (In Billion US$: Kenya 16.5; Rwanda 2.3; Tanzania 9.5; and Uganda 4.5) If you were to distribute the respective budgeted resources to citizens of individual countries, each citizen would collect the following different amounts in US Dollars; Kenya citizen would pick a cheque of 372; Rwanda 209; Tanzania 217 and Uganda 126. Does this reflect the differences in development levels of local economies? The answer is no. We shall deal with this issue next time. Important to note, however, is that sharp increase in deficit levels (more importantly its financing) as demonstrated by budgets presented by almost all the EAC Partner States, are likely to raise governments’ borrowing costs. Given that EAC economic stability is to a greater extent influenced by external factors (in most of the cases for the worse) then the financial year 2012/13 will exercise the good minds of Ministers of Finance. Balancing economic objectives and political commitments is going to pre-occupy the treasury and finance ministers for this period. One point that comes out clearly from the budgets presented is that political commitments by government leaderships across the region have prevailed over economic justifications, to a bigger extent.