Although East African governments’ pro-growth fiscal policies will support economic expansion over the next two years, recurring fiscal deficits will constrain their creditworthiness at a time when they have less capacity to absorb future balance sheet shocks, Moody’s Investors Service said in a report released on Monday.
In June, each of the five Moody’s-rated East African sovereigns – Kenya, Ethiopia, Rwanda, Tanzania and Uganda – presented budgets for the next fiscal year, some of which included large infrastructure spending plans that will lead to continued fiscal deficits.
“In the next two years, we expect that fiscal deficits will be below those necessary to stabilize debt in all East African countries except for Uganda, where the debt burden is expected to rise, compared to declining or broadly stable debt burdens in the rest of the region,” said Lucie Villa, a Moody’s Vice President – Senior Credit Officer and the report’s co-author.
“However, risks to the medium-term fiscal outlook persist and stem from fiscal slippage or interest rate increases beyond our forecasts, as well as economic and socio-political shocks that would likely result in a deterioration in government fiscal positions,” Lucie said in a statement issued in Nairobi.
Although fiscal deficits over the past five years have already contributed to weaker debt metrics, weighing on Moody’s assessment of the countries’ fiscal strength, Tanzania and Ethiopia have been posting smaller deficits than regional peers, leading to a more moderate rise in their debt levels.
JK/abj/APA