Transcript In depth Analysis of EAC Budgets

An economic perspective
Stephen Mwombela, Research on Poverty Alleviation
IN DEPTH ANALYSIS OF EAC BUDGETS
OUTLINE
Introduction
 Revisiting the budget frame
 Key sectoral allocations
 The Common External Tariff
 Impact on Food and Agriculture
 Uncertain Outcomes
 Addressing Challenges and Uncertainty

INTRODUCTION
Economic integration has rendered national
boundaries meaningless
 EAC countries not homogeneous (identical) yet
similar
 Similarity characterized by more than
geographical proximity and GDPs
 Uncertainty and generalized vulnerability

INTRODUCTION - SHARED PROBLEMS
Table 1: The macro economy in the EAC
Country
Real GDP
Growth (%)
Food
Energy
Population
Inflation (%) Inflation (%) Inflation (%) Growth (%)
National
debt (% GDP)
Tanzania
6.7
10.9
16
21
3.0
44.4
Kenya
5.0
18.6
24
13
2.7
48.9
Uganda
6.7
15.7
42
10
3.2
29.2
Rwanda
8.8
8.4
11
2
3.0
23.4
Source: National Accounts of member states and IMF Statistics
• Rising prices of commodities and energy threaten to erode gains
in income/output.
• Large national debts in uncertain economic times – Threaten
access to concessional funding/loans risk to exacerbate the
problem
• EAC countries import dependent – depreciating domestic
currencies
INTRODUCTION - SHARED PROBELMS
Current Account Balance (% of GDP)
5.0
0.0
2005
2006
2007
2008
2009
2010
2011*
-5.0
Kenya
-10.0
-9.2
Rwanda
Tanzania
Uganda
-15.0
-20.0
-25.0
THE BUDGET FRAME
Table 2: Budget Frame (Annual percentage change FY 2010/11 to FY 2011/12)
Country
Total
Expenditure
Tanzania
Kenya
Uganda
Rwanda
Recurrent
Expenditures
17
16
5
8
Development
Expenditure
10
8
8
8
Domestic
Revenue
29
31
73
11
13
18
23
12
Source: Ministry of Finance Tanzania, Kenya, Uganda and Rwanda.
Table 3: Budget Frame (proportions)
Country
Recurrent Expenditures Development Expenditure Domestic Revenue
Grants
2010/11 2011/2012 2010/11 2011/2012 2010/11 2011/2012 2010/11
Tanzania
67
64
33
36
52
50
Kenya
70
65
30
35
61
62
Uganda
49
51
51
49
55
64
12
18
Rwanda
52
52
48
48
48
50
38
42
Source: Ministry of Finance Tanzania, Kenya, Uganda and Rwanda.
21
2011/2012
29
7
THE BUDGET FRAME
Trends – Budget frames consistent over two years
 Trends – Almost 1 out of every 2 UGS and Rwf
spent on development.
 Salaries and Other charges gobble up more than 6
out of every 10 shillings in Kenya and Tanzania
 Weak domestic revenue mobilization with more
than a third of all public expenditure reliant on
external assistance and/or deficit spending.

KEY SECTORAL ALLOCATIONS
Table 4: Key Sectoral Allocations (In billions of domestic currency)
Country
Tanzania
Kenya
Uganda
Rwanda
Energy and
Infrastructure Minerals
2781.4
187.4
1,651
100.9
Agriculture and
Irrigation
Education
Water
539.3*
79.9
1,320
98.6
621.6
55.2
271.3
926.2
53.3^
434
67.1
2283
233.1
1,669
170.5
Health
1205.9
85
799.1
131.9
Source: Ministry of Finance Tanzania, Kenya, Uganda and Rwanda.
* Revised to 1,200 billion TZS
^ Agriculture only
Table 5: Key Sectoral Allocations (proportions of total)
Country
Tanzania
Kenya
Uganda
Rwanda
Energy and
Infrastructure Minerals
20.6
12.8
13.4
9.5
4.0*
5.4
13.7
9.3
Source: Ministry of Finance Tanzania, Kenya, Uganda and Rwanda.
* Revised allocation amounts to 8.9% of budget proposals
^ Agriculture only
Agriculture and
Irrigation
Education
Water
4.6
3.7
2.8
6.8
3.6^
4.5
6.3
16.9
16.0
14.7
16.0
Health
8.9
5.8
8.3
12.4
KEY SECTORAL ALLOCATIONS
Water given overall low priority
 Spending in human capital (health and
education) accounts for almost a quarter or
more of public spending in Rwanda, Tanzania
and Uganda.
 Widespread emphasis on energy and physical
infrastructure.

COMMON EXTERNAL TARIFF
Table 6: The Common External Tariff
Country
CET Budgetary Measure
Tanzania
-Extended the stay of application of CET rate of 35 percent on Wheat grain
under HS Code 1001.90.20 and HS Code 1001.90.90 and apply the CET rate at
0 percent for one year.
- Grant import duty remission on component parts and inputs for assemblers of
refrigerators and freezers and reduced duty rate to 10% from 25%.
- 0% levy on premixes used in the
manufacture of animal and poultry feeds
- Grant the stay of application of EAC-CET on HS Code 8704.22.90 and apply
import duty rate at 10 percent for one year for motor vehicles transporting
goods with gross vehicle weight exceeding 5 tons but not exceeding 20 tons
-Split HS Code 2106.90.90 and provide for 10 percent for food supplements
Rwanda
Regarding the application of the Common External Tariff (CET), it was agreed to
extend the stay of application for Rwanda for a period of one year on the
following products: i. Rice: CET of 30% ii. Tractors: CET of 0% iii. Trucks carrying
capacity exceeding t tonnes but not exceeding 20 tonnes: CET of 10% iv. Wheat
IMPACT ON FOOD AND AGRICULTURE
Table 7: Summarized impact of budgets on food and agriculture
Country
Direct Interventions
Anticipated Impact
Tanzania
-VAT exemption on spare parts for agricultural equipments
such as threshers, rice dryers and mills, planters, trailers
and power tillers used in organised
- Exempt VAT on spare parts for grain conveyors, sprayers
and harrows.
-Fast tracking 2010 PPP Act in conjunction with the 1997
Investment Act.
-Southern Agricultural Growth Corridor of Tanzania (SAGCOT)
under Kilimo Kwanza. $60mil (10% of Agri budget) to come
from the World Bank in FY 2011/2012
-Promote investment and
mechanization of agriculture
which should in turn lead to in
creased productivity and value.
-Importation of rice at 35% instead of 75% for a period of
one year.
-Remission of import duty on wheat grain at 0% instead of
10% granted last year, for 1 year
-Remission of import duty on maize grain at 0% instead of
50% for a period of six months for gazetted millers
-Reduction of import duty on food supplements from 25% to
10%
-KSh 10.2 bil for expansion of irrigation programme.
-Enhancing national food
security.
-Potential pitfall: Adverse
weather conditions particularly
in northern Kenya
Kenya
- Attracting private capital in
agriculture and increased
utilization of local labour force.
AgriSoil? Land grabbing?
IMPACT ON FOOD AND AGRICULTURE
Table 8: Summarized impact of budgets on food and agriculture
Country
Direct Interventions
Anticipated Impact
Uganda
-The Agricultural Credit Facility extended for a third
year, and eligible projects in the agricultural sector will
be financed at a preferential rate of 10% for a
maximum period of 8 years
-Ush 5 billion for irrigation and water harvesting
- Ush 2 billion for rehabilitation of small scale
warehouses
-Ush 9.5 billion for disease and pest control
-Extension of credit facility likely
to encourage private sector
involvement, promote
mechanization and a departure
from subsistence farming.
- Sectoral allocations too minimal
to likely have a direct impact.
-Anticipated increases in power
generation likely to promote local
processing of grains
Rwanda
-Expansion of food storage capacity with 66,000 MT
worth of storage expected by end of 2011
-Provisions of US$ 136.3 million for private sector
imports of food to augment domestic production and
enhance food security
-40,000 Metric tonnes of fertilizers will be procured
and distributed to farmers.
-Expansion of improved seeds programme
Food security attained especially
with stern support of crop
intensification programme.
Budget theme “Ensuring food
security and price
stability whilst maintaining
sustainable
growth”
UNCERTAIN OUTCOMES
Susceptibility to global events – High food and fuel
prices vis-à-vis limited foreign exchange earnings
and eroding BOP accounts
 Inadequate fiscal space – Spending more than
one can mobilize and spending too little.
 Policy time lag – especially investment spending.
 Ad hoc trade policies – Temporary maize export
ban in Tanzania
 Land management and use
 Excessive reliance on trickle downs and spill-overs.

ADDRESSING CHALLENGES AND UNCERTAINTY




Rationalization of fiscal incentives to raise sufficient
domestic revenue reduce reliance on deficit financing.
Review of financial institutions’ (esp. Commercial banks)
participation in government issued securities to force
them to lend more to general public rather than
government. This would drive down the cost of lending
Accelerated investment in sustainable physical
infrastructure and a critical review of costs – E.g cost of
tarmacking.
Active promotion of domestic investment through policy
and statute review
THE END
Thank
you