EA Nations Intensify Focus On Foreign Bonds As Aid Dwindles

Kenye, Uganda and Tanzania are turning to financial markets to finance their budgets, including the sale of sovereign bonds, as the European debt crisis forces governments to slash spending and curtail aid to Africa. The three East African nations are under pressure to lift investment to help sustain economic growth that is forecast by the African Development Bank at 6 per cent in East Africa this year, the fastest of any region on the continent. Kenya and Tanzania are considering selling their first global bonds in the fiscal year beginning July 1, while Uganda may follow Kenya’s lead in issuing domestic infrastructure bonds. “Aid is mostly on the decrease as donor countries find themselves in serious trouble,” said Ridle Markus, Africa strategist for Barclays Plc’s Absa Group Ltd. in Johannesburg. “We’ll be looking for how these East African countries can fund their budgets given fiscal pressures.” UK Prime Minister David Cameron is planning the deepest public-spending cuts since the 1980s to rein in a deficit that ballooned to more than 11 per cent of gross domestic product in the year through March. Germany’s Chancellor Angela Merkel pledged on June 7 to trim 81.6bn euros (USD97.7bn) in federal spending between 2011 and 2014. Greece, Spain, Portugal, Ireland and Italy have also announced austerity measures. “We gradually want to get rid of the donor dependency syndrome,” Tanzanian Finance Minister Mustafa Mkulo said on June 2. The government plans to cut foreign loans and grants to about 25 per cent of fiscal spending in the year through June 2011, from 39 per cent this year, he said. Uganda expects budget support grants and loans to drop to 790bn/- (USD345m) next fiscal year from 1.06trn/- this year, according to the budget estimates issued on May 21. Kenya, the biggest economy in the region, revived a plan this year to sell an international bond of USD500m to fund renewable energy projects. Tanzania also plans to raise the same amount in a Eurobond sale in 2010-11, Mkulo said on Jan. 28. Uganda’s central bank Governor Emmanuel Tumusiime-Mutebile has said the country is unlikely to sell bonds abroad. “Deficits have crept up gradually and in Uganda and Tanzania there’s been a decline in donor aid,” David Cowan, a sub-Saharan Africa analyst at Citigroup Inc., said by phone from London on Thursday. “A trend we’ll see in all three budgets is significant deficits and how they plan to finance that.” Government debt levels are low enough to give the three countries room to seek external funding.

Mustapha Mkullo, Tanzania'a Minister for Finance and Economic planning. This was durimng the busget day in parliament in Dodoma.

Kenya’s government debt was 44.7 per cent of GDP at the end of last year, Tanzania’s was 37.1 per cent and Uganda’s was 22.2 per cent, said Cowan. “Kenya can still borrow to finance growth,” Nikhil Hira, head of tax at Deloitte LLP’s East Africa unit, said in an interview in Kenya’s capital, Nairobi, on Thursday. Budget deficits in the three countries will probably reach between 4 per cent and 5 per cent of GDP in the year beginning July 1, said Cowan. Kenya’s shortfall probably climbed to 6.2 per cent this year, Uganda’s reached 2.4 per cent and Tanzania’s eased to 5.1 per cent, according to estimates from the International Monetary Fund. Kenya may raise additional funds by selling stakes in state-owned units, such as Kenya Commercial Bank Limited. and Kenya Power and Lighting Company., said analysts including Yvette Babb at Standard Bank Group Limited. in Johannesburg. Expanding the electricity supply is a priority for all three countries. Tanzania, Africa’s fourth-biggest gold producer, needs USd2bn to help boost power capacity over the next five years, according to Energy and Minerals minister William Ngeleja. Only 14 per cent of the population currently has access to electricity, according to the minister. Kenya scheduled power cuts between Aug. 6 and Oct. 22 last year after low water levels at hydroelectric dams cut capacity to about 30 per cent. The government plans to build power plants to generate 1,500 megawatts by 2019. “Growth is picking up and will probably stay strong,” said Cowan. “But then you run into the electricity shortages again, which brings you back to the infrastructure story and the need to invest more. The budgets will concentrate on infrastructure spending and agriculture.” Kenya’s economy will probably expand 4 per cent this year and 5 per cent in 2011, the World Bank said on June 3. Tanzania’s economy will probably grow 6.7 per cent next year, up from 6.2 per cent in 2010, while Uganda’s growth is forecast to accelerate to 6.4 per cent from 5.6 per cent, according to the IMF.
SOURCE: THE GUARDIAN