East African Ministers for Finance and Economic Planning, including Rwanda’s Dr. Uzziel Ndagijimana, on Thursday showed up in Parliaments of their respective countries with budget estimates that indicated planned expenditure towering over anticipated revenues.
In management accounting, a budget is a formal statement of estimated income and expenses based on future plans and objectives of an individual, company or country, in this context.
Juxtapose that definition with what economists call ‘deficit budgeting’ whereby an individual, business or government, plans to spend more than the available revenue to pay for that spending, (hence resorting to borrowing to bridge the resource gap).
Ideally, one should aim for a balanced budget where planned expenditure is equal to anticipated revenue, or even better, a budget surplus, where expenditure is less-than expected income.
Unfortunately, in the financial year 2019/2020, as has been the case previously, EAC governments will again preside over sharply lopsided budgets in relation to their anticipated revenues.
Kenya, the region’s largest economy leads the pack, with an ambitious expenditure plan of US$29.2billion which, compared to its projected revenues, someone aptly likened to retired basketball star Shaquille O’Neal standing next to Comedian Kevin Hart.
In fact, Kenya’s budget estimate is bigger than the combined budgets of Tanzania (US$14.3bn), Uganda (US$9.1bn), Rwanda (US$3.2bn) and Burundi’s US$824million.
The idiom, ‘boxing above one’s weight’ could claim relevance in the context of our countries’ budget planning; low-income economies spending like high-income countries. This has seen our countries’ external debts rising gradually, over the years.
In a bid to raise the extra resources beyond the over-stretched tax revenues, countries will be active on the market both domestically and externally. But even as they seek new debt, they will still be required to pay off their existing debts.
The region’s combined total debt-stock as of 2018, according to African Development Bank statistics and International Monetary Fund World Economic Outlook stood at US$79billion comprising of Kenya’s US$42.7bn, Tanzania’s US$19.2bn, Uganda’s US$12.5bn and US$4bn for Rwanda with Burundi placed at US$500m.
Nonetheless, AFDB and IMF both say, “the risk of debt stress is low in Kenya, Rwanda, Tanzania, and Uganda,” because they are still below the region’s prescribed debt to GDP ratio of 50 percent.
But analysts are concerned that as countries continue borrowing more to finance their ambitious expenditures, that risk could risesignificantly unless the money is used to invest in productive sectors and in projects that will spur more growth and yield returns to help repay debts.
Kenya has been borrowing to develop a modern railway to boost trade but early returns from the Chinese sponsored projects have not earned approval from many an observer.
Uganda which is borrowing against oil reserves whose drilling date has been shiftedseveral times, faces serious challenges of corruption and embezzlement of public funds.
With elections coming up in both Kenya and Uganda, budget implementation efficiency is likely to suffer substantial political risk such as diverting resources to meet populist political objectives.
In Tanzania, President Magufuli is refocusing efforts to reigniting the country’s manufacturing sector as well as investing in a modern railway but his authoritative leadership style is proving to be counter-productive and a turn-off among investors.
For Rwanda, Minister Ndagijimana showed-up before Parliament in a buoyant mood with a total budget of Rwf2,876.9billionafter enjoying an exceptionally successful budget year 2018/2019 where projected revenue targets were exceeded, making available more resources to spend.
As of the end of March 2019, total resources that accrued to the budget amounted to Rwf1,873.7 billion which exceeded by Rwf37 billion the projected target ofRwf1,836.7billion.
Like in the outgoing financial year, the 2019/2020 budget is firmly anchored on the shoulders of the tax payer who will contribute at least 85.8 percent from tax revenues and domestic borrowing. Some 25 years ago, domestic contribution used to be around 15 percent.
Clearly, Rwanda is on a steady march towards the self-reliance that has been in hot pursuit since President Paul Kagame’s ascension to the presidency.
Rwandans should be proud that they are financing the bulk of their own national budget in spite of not possessing vast natural resources.
In the outgoing fiscal year, the tax payer exceeded expectations when they gave the tax collector Rwf 1,015.5billion,which was Rwf7.2billion more than Rwf 1,008.3 billion that had been projected.
It was such a good year for the budget ministry in that even total non-tax revenue collections exceeded the projected Rwf179.3 billion by an impressive Rwf24.1billion, making available Rwf203.4billion.
As the budget ministry sets out to implement its 2019/2020 budget, it will be hoping for another successful year where anticipated revenue targets are exceeded by huge margins, hence enabling prompt disbursement of the budgeted allocations to all sectors.
To achieve that, the minister has proposed deliberate measures to improve the tax collector’s efficiency.One measure is the introduction of a compulsory “Electronic Billing Machine for all” which every person carrying out commercial activities will be obliged to use.
This measure will expand the coverage of EBM use to Non-VAT registered persons and improve tax compliance among traders. But the biggest incentive will be how the economy performs. If it keeps its 8.6 percent pace, the budget ministry should bank on another successful fiscal year.
The views expressed in this article are of the author.