By Jee-A Van Der Linde – Economist
Finance ministers of East Africa are expected to table their respective budgets in coming days for the new financial year that begins on July 1. The reading of East African budgets is normally a joint exercise.
The new budgets come at a pivotal time, as the unexpected Covid-19 pandemic has placed pressure on government finances in 2020.
Authorities have little choice but to provide fiscal support where they can. However, there will be challenges and the governments will need to closely monitor developments to avoid the budget deficits from spiralling out of control.
Government finances will take a hit across the region. We believe that this will for the most part be driven by the collapse in fiscal revenue due to the marked deterioration in the economic outlook.
The region’s largest economy, Kenya, has provided fiscal support through tax relief, which will further weigh on the revenue side.
In general, on the expenditure side we expect to see a lot of reprioritisation away from sectors that have seen activity halted due to the Covid-19 pandemic. This could include a reduction in direct spending in the tourism sector and construction.
These resources will likely be redirected towards containment efforts – particularly health care – and social support.
Regardless, East African fiscal finances will look a lot worse during the next fiscal year than what was expected a few months ago. Fiscal deficits will be wider than previously anticipated and public debt will increase at a faster rate.
We have seen multilaterals stepping up support, which could reduce the longer-term fiscal impact of the Covid-19 crisis, but commitments to date will undoubtedly have to be supplemented to ensure that the Covid-19 pandemic does not have a long-term fiscal legacy.
Furthermore, most East African nations have been able to assess the impact of the virus and incorporate this new reality into their budgets.
This is a lot more efficient than having to adjust a budget midway through a fiscal year.
Rwanda, the region’s fastest-growing economy in 2019, is to delay publishing its budget for the new financial