KAMPALA – The International Monetary Fund (IMF) has raised a red flag over the rate at which East African countries are accumulating debt. So far Kenya, Uganda and Tanzania are among the top 50 countries in the world that are highly indebted to China, according to a US-based research firm Brookings Institution
According to the IMF, by the close of the year, the countries in the East African Community will be highly indebted compared to their GDP ratios.
The fund says the economies have resorted to massive borrowing, both domestically and internationally to cover their budgets, with fears that the increasing uptake of commercial loans could push most of them into debt distress.
According to Brookings, countries are now shifting away from official multilateral creditors who come with stringent conditions to non-concessional (commercial) debt with relatively higher interest rates and lower maturities.
This trend, however, has raised concern around debt sustainability given the possibility of higher refinancing risks and foreign exchange risks.
“An over-reliance on commercial public debt exposes sovereign balance sheets to greater rollover and exchange rate risks. Also, an increase in debt from domestic creditors could crowd out financing for private sector projects,” said the IMF.
The IMF, in its regional economic outlook report for sub-Saharan Africa released last week, says surging public debt-to-GDP ratios for Uganda, Burundi, Kenya, Rwanda and Tanzania has left them highly exposed to greater rollover and exchange rate risks.
“With several countries facing increased foreign exchange and refinancing risks, it is critical to enhance debt management frameworks and transparency,” says the report.
In May, Kenya went for a third Eurobond raising Ksh210bn ($2.1bn) to pay off other maturing debt obligations, finance development programmes and fund government operations.
In September, the country’s lawmakers also voted to increase the government’s borrowing ceiling to Ksh9trillion ($90 bn) in the current 2019/2020 fiscal year, breaching the EAC debt ceiling on debt accumulation, which is set at 50 per cent of the GDP.
Burundi’s ratio will reach a high of 63.5 percent from 58.4 per cent last year. It will be followed by Kenya and Rwanda whose debt-to-GDP ratios are expected to increase to 61.6 per cent and 49.1 per cent from 60.1 per cent and 40.7 per cent respectively during the same period.
In Rwanda, increased public investment, real exchange rate depreciation and government guarantees have aided a surge in national debt according to the World Bank.
In 2017, 19 African countries had exceeded the 60 per cent debt-to-GDP threshold set by the African Monetary Co-operation Programme for developing economies, while 24 countries had surpassed the 55 per cent debt-to-GDP ratio suggested by IMF.
The debt-to-GDP ratios for Uganda and Tanzania will increase to 43.6 per cent and 37.7 per cent from 41.4 per cent and 37.3 per cent respectively.
According to the IMF, further fiscal consolidation is needed over the medium term among regional economies to reduce debt vulnerabilities and create fiscal space for development needs.
According to Brookings Institution, concerns about an impending debt crisis in Africa are raising alongside the region’s growing debt levels.