2010 Q1: Feature on the 2010 Monetary Policy Statement and Budget
Rf27 ea budgets
1. EA’S BUDGET
In June 2012, all East African analysis from civil society and
Community (EAC) partner states, opposition groups that highlight
aside from Burundi, announced t h e g a p s i n t h e b u d g e t s.
their 2012/2013 budgets. As part Professional companies then try
of an agreement to harmonize to dissect the budgets and
examine their strategic
and bring more convergence to
implications. This process is
their respective economies, all of
repeated annually and all of
these countries announce their
these institutions claim to be
budgets simultaneously. The speaking for the people,
budget period encompasses a especially those who are living in
variety of narratives that serve as vulnerable conditions. Each year,
a progress report of where each promises are made but are the
country stands on their livelihoods of the poor and
economic and development vulnerable worse off than the
targets. The budgets highlight year before?
the priorities of the countries The recently announced East
and provide hints on future African budgets come at a
development strategies. critical time in the region. The
vision and priorities highlighted
The budget season in the region
in these budgets will be essential
consists of four different phases.
as the region moves forward and
There is the reading of the
seeks to maximize on the
budget by the Finance Minister
growing global interest it has
who explain the progress made
begun to receive, especially in
in the previous financial year
light of the recent oil and gas
and outlines a vision for the
discoveries. For Kenya, this is the
country’s future priorities. This is
incumbent President Mwai
followed by a Parliamentary
Kibaki’s last budget before the
debate and simultaneous
Paying
$34 billion for
whom? How do
EA’s budgets
affect the poor
and vulnerable?
the Piper
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2. much-anticipated 2013 presidential elections. Tanzania’s budget
"For the last ten comes at a time when the country is at a crossroads, having to adjust
its priorities in light of recent discoveries of gas as well as domestic
years, the challenges that have highlighted the growing inequality and mistrust
governments' of government. The challenge all the countries have to wrestle with is
that of finding a delicate balance between financing these ambitious
budgets mention projects through domestic revenues and having to rely on donor
support. The latter, which has put many East African governments on
about improving edge in light of the economic shocks still reverberating within the
health, agriculture, donor economies as a result of the 2008 financial crisis and the
ongoing Eurozone crisis. Most of the budgets require significant
fisheries and creating support from donor partners and as austerity measures become the
employment norm in many of the donor countries, downstream effects imply that
East African governments likewise have to prepare to face an
opportunities and yet adjustment period.
there is little This GHEA Outlook will seek to highlight the budgets outlined by the
East African governments and analyze their implications on the poor
achievement. Many and vulnerable. To what extent are regular citizens involved in the
people continue to debates and conversations revolving around the budgets? Do they
understand the budgets and their implications for their lives and
complain, I think the livelihoods? This Outlook will also offer insight and analysis obtained
governments still through conversations with key commentators on the strategic
implications of the budgets. It will also seek to explore and
have problems with understand the extent to which the priorities of the government
match the expectations of their citizens?
proper planning."i
"This budget
actually is for
urban folks,
not the rural
population”ii
Refurbishing$dilapidated$infrastructure$is$a$key$priority$in$the$East$African$budgets$for$the$201202013$period.
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3. The 2012–2013 East
African Budgets
Main Elements such as high inflation rates, unreliable of foreign financing. What happens
power supply, food prices, increased when the funds dry up or when
The East African budgets total an
lending rates and high unemployment support is withheld due to political
estimated $34 billion for FY 2012/2013.
among the youth could potentially reasons?
Kenya’s budget will cost an estimated derail the priorities and projects that
$17.7 billion, Tanzania will spend $9.5 are outlined in the 2012/2013 budget.
Government Priorities and
billion, Uganda will spend $4 billion their Implications
followed by Rwanda with $2.8 billion. It Despite regional media outlets and
is no surprise that Kenya’s budget is the analysts describing the East African The main elements in the budgets
largest in the region but it depends far budgets as bold, there has been delivered by Kenya, Tanzania, Uganda
less than its neighbors, specifically significant criticism. Two factors that and Rwanda were: maintaining and
Rwanda and Tanzania, on foreign aid. can derail any implementation sustaining economic growth,
With the exception of Kenya and procedures of the budget are how mitigating high inflation and interest
Uganda, most of the region’s budgets much these countries are in debt and rates, reduce the cost of doing
rely heavily on external budget their capability of financing such bold business, instituting more public-
support. budgets considering how reliant the private partnership, infrastructure
region is on donors for general budget development, agriculture, education,
Although the value of the budgets vary support. h e a l t h a n d fo o d s e c u r i t y. T h e
in size they do not differ significantly in
increasing importance of natural
both priorities and challenges they Uganda and Kenya finance their
resources are evident, especially in
face. The budgets demonstrate budgets between 76-86% through
Kenya, Tanzania and Uganda with their
significant challenges in being able to d o m e s t i c r e v e n u e s . i v R w a n d a’s
dependence on donor support for the recent discoveries of oil and gas, but
maintain the rapid economic growth all
2012/2013 budget is the highest in the strategies and budget implications are
the countries have had in the past and
still in premature stages.
dealing with rising debt loads. region, at an estimated 48%. Although
the trends show that donor Uganda’s 2012/2013 Vision
“ The EAC [governments] are dependence has decreased over the
experiencing major problems in Education takes up the majority of the
years, the fact remains the region’s
fi n a n c i n g r e c u r r e n t c o s t s , 2012/2013 budget expenditure with
demonstrated by the fact that literally economies are vulnerable to shocks
17% of the total budget. As a result
all member states devote a that could derail their development
disproportionate share of budgetary primary school teachers, who have
agendas.
resources to paying civil service salaries been conducting strikes in neighboring
and in servicing debt-leaving very little For instance, Tanzania’s $9.5 billion Tanzania and Kenya over pay raises,
money for running government budget expenditure is expected to expect a salary increase. Uganda’s
operations.” iii have $542.4 million in general budget priorities lie in infrastructure, youth
Challenges to effective implementation support as well as $1.5 billion in foreign employment, information technology
of these budgets are also common loans and grants. Rwanda’s $2 billion and the pay as you earn scheme (PAYE).
amongst the partner states. Factors budget is supported by $244.3 million The Government hopes that its
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4. investment in the Youth Venture Port of Mombasa was brought up. The • Government will increase labour
Capital Fund would provide ways to Finance Minister of Kenya only absorption of youth including
reduce youth unemployment.v mentioned the Port of Mombasa twice training and passing work
experience and enhancing the
According to Pricewaterhouse Coopers in his budget speech, which was quite
private sector employability of
Uganda: “ Transport, energy and peculiar considering the difficulties the youth.
education continue to take the lion’s port has experienced over the past 18
share with a combined allocation of months. Tanzania’s 2012/2013 Vision:
over 43.8% (FY2011/12: 41.8%). R e d u c i n g D e ve l o p m e n t
KPMG’s description of the 2012/2013
Notably, percentage budget allocation
Kenyan budget is the most apt, it Expenditure
for health sector has reduced from
descr ib es K e nya’s b u d g e t a s a Tanzania’s 2011/2012 fiscal year was
8.3% to 7.8% despite growing criticism
transitional budget. To take this further, plagued with challenges and crises that
that it continues to fall short of 15%
is this a lame duck budget that will only slowed down its GDP growth. The food
t a rg e t e n s h r i n e d i n t h e Ab u j a
be politicized rather than implemented crisis juxtaposed with incessant power
Declaration.” Agriculture is clearly an
fully in an election year? outages weakened the Tanzanian
important anchor for transforming
Education receives a 9% increase and shilling and increased inflation and
U g a n d a’s e co n o my a n d we a l t h
will have direct implications for the interest rates. Deloitte describes
creation. In order to accomplish this,
poor and vulnerable as KPMG outlines: Tanzania’s budget for FY 2012/2013 as
the Ugandan Government believes that
upbeat despite a drop in budgetary
ensuring food security will keep the • 1.1Kshs billion ($12 million) for a allocation towards development
economy on its current trajectory and bursary program for poor orphans
expenditures from 38% to 30% which
prevent an economic slowdown. and children from poor households
in secondary schools and KShs 300 would have a negative impact on the
Kenya’s 2012/2013 Vision: A million ($3.5 million) for sanitary poor and vulnerable. The main
Transitional Budget towels for primary school girls; priorities of the 2012/2013 budget are
to maintain and increase economic
Of all the budgets in the region, Kenya’s
2012/2013 budget is the most
important and in many ways has the EA#Budget#Expenditure#by#Sector,#201282013
most implications for the region. This
budget will have to oversee Kenya’s
presidential elections and its continued 1.1$%bn.
expensive devolution process.
The Kenyan Government’s priorities for
FY 2012/2013 are strengthening the
financial systems by continuing the 5.9$%bn.
implementation of legislative and 4.1$%bn.
institutional reforms, increasing
infrastructure investments and “making
growth and development more
inclusive and equitable across the
country.”vi In order to accomplish this,
the government plans to reform the
public sector, improve law enforcement 1.9$%bn.
Infrastructure
and improve efficiency at the port of Health
Mombasa. Interestingly enough, not a Education
lot of information or discussion of the Agriculture
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5. growth, increase the availability of foreign aid and support to its budget. distributed across the four sectors. All
food, reduce inflation rates and The Finance Minister John Rwangobwa of the Finance Ministers, during their
strengthen revenue collection as well explained as much: budget speeches, indicated the main
as creating employment for the youth. priority is infrastructure development.
“We continue to increase our domestic
In an attempt to soften the blow of resource mobilization in order to The region will spend almost $6 billion
reduced allocation of the development finance an increasing share of our in FY 2012/2013 on infrastructure
public expenditure and reduce their
expenditure, the government waived development and $4.1 billion on
reliance on external support.” viii
the presumptive tax on businesses with education. Health expenditures are
a turnover below 3 million TZShs.vii This Rwanda has been one of the most m u c h l o we r a t $ 2 b i l l i o n a n d
is designed to support small businesses attractive business destinations in the agriculture, perhaps due to a shift in
and protect low-income households. region due to its generous tax economic focus will receive an
incentives. However, in the 2012/2013 estimated $1 billion. Although the
Rwanda 2012/2013 Vision: budget, it plans to increase spending budget picture above does not tell the
Reducing Donor by 16% and as a result will review its whole story of the priorities laid down
Dependence investment and tax codes in order to by the East African budgets,
increase revenue to pay for its considering there are other sectors not
Rwanda’s budget priorities for the increased spending. It may be too soon examined, the priorities are clear with
2012/2013 will mainly focus on to tell but Rwanda will have to strike a
infrastructural development, creating 17% of the East African budgets
critical balance of finding new ways to dedicated towards infrastructure.
off-farm employment, promoting increase revenues without relying on
urbanization and maximizing revenues foreign aid and tarnishing its label of
from tourism and mining. One of the
main challenges that Rwanda will be
being an attrac tive investment $34 BILLION FOR
destination.
facing is trying to expand domestic
revenues to reduce its reliance on The pie chart above provides a sense of
WHOM?
where the budget expenditures are WILL THESE BUDGETS
AFFECT THE LIVES OF THE
POOR AND VULNERABLE?
Professional commentators sometimes
provide analysis of winners and losers
from specific budgets. For instance,
infrastructure development and
education is the clear winner in all of
the East African budgets because they
appropriated significant funds that
spell out a long-term commitment.
What is clear throughout the region is
that social services have not been a
priority. For some countries, even,
healthcare spending has been too low
to meet the demand. For example, in
Tanzania health care spending is far
less than the WHO recommendation.ix
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6. There are key issues within the four agriculture, roads and energy; and with Uganda’s National Development
budgets presented to the public by the honoring the commitment to reduce Plan (NDP) and now new Vision 2040.
E a s t Af r i c a n g ove r n m e nt s t h at tax exemptions. Two things stand out Infrastructure and human capital
demonstrate a deferral in prioritizing in this assessment, one, the fair development, primarily education, take
the needs of the poor and vulnerable. distribution of resources and two up the majority of the 2012/2013-
In Tanzania it is the lack of investment improving the quality of education budget expenditure. However, in an
in the health and education sector, in through better school inspections. article by the Daily Monitor titled ‘Is the
Kenya the proposed changes to the budget aligned to the country’s
The fair distribution of resources is a
VAT caused a significant uproar, a lack development plan?’ questions are
timely theme especially in light of the
of addressing issues of the youth and raised about whether infrastructure is
new discoveries of gas in Tanzania. The
women unemployment in Rwanda, and really enough to achieve sustainable
fair distribution of resources is
an apparent disconnect in Uganda’s development in the country. Road
associated with the health sector but
vision from the demand required to projects and infrastructure
can easily be applied to a variety of
improve development. development are highly political in
sectors:
Uganda and in an ideal world “the
Health and Education Gaps “To promote social justice, we urge the selection of the roads should be based
in Tanzania Government to consistently apply the on their expected economic and social
allocation formula for the
According to Mr. Simon Moshy of disbursement of the health block grant returns,” rather than political ones.xii
Sikika, a civil society organization that and the health basket fund from the The choices made on where to build
advocates for accountability in the beginning of the next fiscal year.”xi roads and improve infrastructure
health sector in Tanzania, the Tanzanian In addition to this the issue of projects are based heavily on political
government has consistently faced a education and the quality of it has considerations and promises made
problem of funding and distribution of become an issue that hasn’t gone away. during an election cycle. As the article
essential medicines and medical Though Policy Forum chooses to suggests the country is left with non-
supplies. “Sikika’s survey from May to address the issue of inspection, priority roads rather than priority ones
August 2011 showed that from 100 education has been one sector that the to the detriment of vulnerable
inquiries for a specific essential government of Tanzania has been populations that have limited access to
medicine or medical supply, on perceived in neglecting a great deal. urban areas.
average, 29 were reported to be out of
The perceived lackluster budget Rwanda: Is 48% Too Much?
stock.”x
allocated towards education Rwanda may have the most robust and
The Policy Forum Working Group, established a narrative in the country effective poverty reduction plan in the
representing over 100 different civil that education is not a priority or funds region. However, the problem with
society organizations, produced a pre- are not available. It was in this context, Rwanda’s 2012/2013 budget and
budget statement that called for an a few weeks later, where primary and budgets prior to this one is its over-
equitable and just budget. In it one can secondary school teachers staged a reliance on foreign aid and donor
discern the gaps that exist between nationwide strike in protest of low support. This is all well and good until
what civil society groups expected salaries and not enough benefits. The the inflow of capital gets a shock, such
from the budget and what was strike symbolized a public sector under as the global financial crisis and the
provided. Key areas of concern were: siege with young children sitting idly in current Eurozone Crisis. Things also get
requirement for a free distribution of front of the newspapers. complicated when general budget
resources, improving the quality of
Uganda’s Development Plan support gets political with the current
education through better school
diplomatic crisis between Rwanda, the
inspections, effective use of resources Gaps Democratic Republic of Congo and the
in the agriculture sector, allocation to Broadly speaking the Ugandan budget international community who have
key sectors in education, health, water, prioritizes key sectors that are aligned
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7. decided to withhold funding which has had a direct impact on Rwanda’s 2012/2013 budget and its poverty reduction
strategy.
ActionAid and the Institute of Policy Analysis and Research (IPAR) were two institutions that examined the Rwandan
2012/2013 budget. They label the budget as having a ‘pro-poor character’ and commended the Rwandan government for
increasing the wages of teachers and other lowly paid civil servants by reshuffling funds and redistributing expenditure.
ActionAid and IPAR went even further:
“Clearly, the government has got the balance right between investing in the productive sectors to support economic growth and
transformation while meeting the needs of the poorest and vulnerable.”xiii
Agriculture is one of the most important sectors in Rwanda and an anchor in supporting the transformation of the economy.
This explains the government’s decision to scale-up farmer extension services and commercialize the agriculture sector. The
concern, however, is to ensure rural women smallholder farmers can continue to meet the daily food requirements in their
respective households. “The downside risk to agricultural commercialization is the failure of women to put food on the table
as men tend to control proceeds from households.”xiv Rwanda has as severe malnutrition problem among young children,
especially stunting, (44% of children under-five are stunted) and as a result rural women farmers need the necessary
protection from the government.
ActionAid and IPAR believe that the budget is limited in addressing specific measures and strategies that will result in the
creation of jobs for the youth and women. Although the government has programs that specifically deal with job creation,
training skills and the promotion of employment among the government and private sectors “these initiatives are sometimes
duplicated, scattered under different government institutions, and are not coordinated well enough to create the huge job
numbers (2.5 million) needed to make Rwanda a middle income country by 2020.”xv The trouble here, as indicated in a
previous newsletter (see GHEA Outlook #22 Being Young in the GHEA), is that a disconnect exists between Rwanda’s relentless
investment in human resources and agriculture as pillars of its development strategy and the aspirations of young Rwandans.
“Young people would rather not be ‘collectivized’ as a way of obtaining assistance for their livelihoods needs.” Rather they
would prefer a more individualist approach. Since agriculture is the most collectivized form of improving livelihoods in
Rwanda, there will be some challenges in achieving the 2.5 million jobs needed to make Rwanda a middle-income country
by 2020.
Kenya, VAT and taxing the poor
One of the most controversial aspects of the Kenya 2012/2013
budget was the Value Added Tax Bill 2012. This Bill highlighted
the challenges that exist in trying to generate revenue without
compromising the welfare of the poor and vulnerable. The
most common way to generate revenues is through taxation,
however as Kenyan lawmakers found quickly there are some
things you cannot tax. Essentially, the VAT Bill 2012 would
make a “vast number of products that are currently zero-
rated” xvi standard rated at 16%. The products and
commodities include broadly used and essential items like:
processed milk, rice, bread, wheat flour, maize flour, fertilizers,
LPG gas and computers. This, as Deloitte indicates, would
result in an “inevitable price hike.” xvii
The VAT 2012 Bill also includes the standard rating of fuels and fuel oils that would be put into effect after a grace period of
three years. Deloitte believes that such a tax would be unfortunate, as it would see an increase in fuel prices and inflation by
2015 affecting the cost of living for many Kenyans. This would seem contradict Kenya’s 2012/2013 priorities of “making
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8. South Sudan growth and development more inclusive
Parliament Passes
and equitable across the country.” xviii SUDAN AND
Austerity Budget The reactions to the VAT Bill 2012 were
mostly negative:
SOUTH SUDAN
Excerpt from VOA News – Thursday July 19, “Due to the fact that low income WHEN THE MONEY DRIES UP
2012 segment spends a significant proportion
http://bit.ly/Olg8nq of their income on food items, the VAT
South Sudan’s Parliament passed a budget Looking more broadly at the region’s
will put the necessities beyond their
of 6.6 billion South Sudanese pounds for
reach.” xix financial status, it has been a tumultuous
2012-2013 on Thursday. The budget is less
than last year’s budget, which was 10 (Bosire Nyamori, Africa Bureau of Tax) year for Sudan and Africa’s newest
billion pounds. country South Sudan. Both countries
O ther groups insisted that they
The biggest cuts came in foreign travel, have been in a constant state of tension
understood why the government
salary bonuses, overtime, and housing since South Sudan became independent
allowances for government employees, needed to find new ways of increasing
including the army and organized forces. in July 2011. The two countries have
tax revenues but indicated that it should
Civil service salaries account for the been at odds since January 2012, when
biggest part of the budget, followed by not be done at the expense of the poor
the oil that was essentially going to pay
spending on security and the judiciary. and vulnerable. Under the VAT Bill 2012,
for each countries’ economic and
South Sudan is operating on what has the burden of payment falls heavily and
been called an austerity budget, due to the political survival was switched off by
disproportionately on low-income
shutdown in January of oil production, South Sudan. The result has been an
which accounted for 98 percent of households rather than higher income
government money. While presenting his economic disaster.
ones.
budget proposal to parliament earlier this
The Economist reported that “the
year, Finance and Economic Planning “Vice Chairman of the Parliamentary
Minister Kosti Manibe warned against Public Accounts Committee Thomas shutdown has crippled both countries
overspending, which he said could lead to
Mwadeghu said that the VAT will and inflation [in the South] has climbed
a government deficit.
increase the cost of living especially from 20% to 80% and as a result there
Manibe said, “I call upon the august house
among the poor.” xx has been a serious slide in currency and
to ensure the implementation of the Public
Finance Management and Accountability The dilemma here is that the Kenyan the government has ignored calls to
Act passed last year to ensure transparency
and discipline in the implementation of the
government is seeking alternate and adopt the dollar, making life difficult for
budget.” creative ways to increasing its revenues the vulnerable populations.” xxii The
Jok Madut Jok, the Director of the Sudd but it also hopes that the 2012/2013 Economist, along with many economic
Research Institute and an undersecretary in budget will keep inflationary pressures and political analysts, predicted that by
the Ministry of Culture, Youth and Sports,
says that security is the government’s u n d e r co n t ro l. Th e fe a r i s t h a t October the government of South
“major priority,” as evidenced by the fact introducing such retrogressive bills Sudan would be unable to meet its
that the security budget was virtually payroll. Fortunately, this has not come to
would do neither.
unchanged.
pass as both countries were able to
He said the budget will result in a “marked “The implementation of the Bill could be
reduction” in service delivery, “especially in the worst thing that happened to the strike a deal after an agreement was
the area[s] of education, security and
Kenyan economy in recent times. Apart reached on how much South Sudan
health care and other such services.” But,
he added, “On the whole, the impact is not from driving up the cost of living to would have to pay to route oil through
going to be so great in the lives of the unimaginable levels, it will slow down nor thern pipelines. Up until the
majority of the people who are not getting the current economic growth since most agreement, the north was demanding
any benefits anyway, in terms of salaries people will slide back into poverty"xxi
being spread only among the political class $10 billion over four years as
Vimal Shah - Chairman, Kenya
Association of Manufacturers (KAM) compensation for the loss of the
and civil service.”
‘’This is a budget that [would have] pleased southern oilfields whereas Juba was only
the people if had it been implemented In the end, the VAT Bill 2012 was
willing to pay $3 billion.xxiii
many years back,” he explained. “You are withheld pending further discussions
now doing austerity simply because there Oil production from South Sudan will
is no money.’’ and assessments.
not commence until December and first
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9. payments will be unlikely until early United Kingdom suspended $25 to developing countries, with total aid
2013.xxiv The damage has already been million in budgetary support, Germany failing 3% last year”xxvi
done with high inflation, a weakening $26 million in contributions to
The focus has been primarily on
currency that directly affects the Rwanda’s budget planning from
Rwanda due to the political nature of
livelihoods of the South Sudanese. The 2012-2015 and the Netherlands $6.2
the current diplomatic crisis, however
standoff between the two countries million earmarked for judiciary reform.
the GHEA should heed the warning
has to be seen as a warning sign to the
Rwanda has been forced to think signs. Aside from Kenya’s more
region especially with the euphoria
innovatively about how it plans to fund respectable support from donors,
surrounding the discoveries of oil and
its budget and its poverty reduction Burundi (30%) and Tanzania (30%) have
gas in the region. With South Sudan’s
s t r a t e g y. I n r e s p o n s e , a n d i n a significant stake in making sure the
significant reliance on oil, lessons
formulating its own resilience strategy, donor support continues flowing. This
should be learned about the risks of a
Rwanda launched a multimillion-dollar becomes risky business for countries
resource-based economy. South Sudan
fund to raise capital for key that have hedged their bets on
was forced to pass an austerity budget
development projects. It is mobilizing unmitigated support from Europe and
in July 2012 that reduced spending in
domestic resources from citizens to the Eurozone crisis has essentially
virtually every sector except for the
fi n a n ce k e y r u ra l d e ve l o p m e nt forced countries to change their
security sector.
p r o j e c t s . x x v R w a n d a ’s A g a c i r o outlooks. The ‘Look East’ policy being
Development Fund will raise funds embraced by the region will now be
INSIGHT through voluntary means and ‘well-
wishers’. The government has indicated
accelerated, however the likes of China,
India and Brazil have an enormous
this is not a replacement strategy, constituency to cater to and their
however it is clear that the reliance on interests within the region will only go
Insight #1
donor states has forced it to think so far.
R w a n d a' s ex p e r i e n ce creatively on ways to fund projects.
highlights the risks of Nikhil Hira, a Partner with Deloitte
These types of complexities will only be Kenya, had an interesting input in an
donor dependence the beginning. The main story here has email exchange with this GHEA
been on how the donor community’s Outlook on the predicament Rwanda
In the August 18-24, 2012 edition of strong relationship with Rwanda has finds itself in and donor funding:
The East African there was a telling diminished and the about-face
article that demonstrated the “I think donor funding is going to
Rwanda’s has experienced from its become increasingly difficult precisely
predicament Rwanda has found itself long-term allies. What is missing from because the traditional donors are
in regarding the current diplomatic the discourse is the fact donors can no having financial issues. There will come
crisis it is facing with the DRC and longer shell out the large funds for (if it hasn’t already) a point where the
international community. After a UN developing countries like they used to. citizens in donor countries are going to
Group of Experts published a report question funding of third world
Taking this further, the GHEA can no
that implicated Rwanda as being the countries where there are governance
longer rely heavily on donor funding and corruption issues. […] The move
source of weapons, intelligence and and general budget support if it hopes towards the East will be inevitable and
funds for the M23 rebel group in to achieve sustainable development. indeed has started. China has set aside
eastern DRC, a flurry of governments The 48% accounting of donor-funded US$ 20 billion for Africa and I believe
and partners suspended aid to the support of the budget is unsustainable India US$ 5 billion. Both these countries
Rwanda, the least being the more have a huge need for the natural
and Rwanda knows this. The question
symbolic $200,000 cuts in military aid resources in Africa – particularly oil – to
is whether regional governments are fuel their domestic economies.
by the US. More substantially was the paying attention to the writing on the Unfortunately governance questions
withholding of funds by donors that wall. “The Euro Crisis has forced are not then going to be high on the
were directed to the budget. The developed countries to reduce their aid agenda.”
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10. The trouble with the ‘Look East’ policy is that the priorities would be on
supporting ‘hard’ infrastructure projects and deviate away from the ‘soft’
East African government
issues that directly affect the poor and vulnerable. Anytime cuts to a budgets: Anything to
budget have to be made, it is the social contracts with the people that go
first.
boost morale?
Excerpted from The Guardian (Tanzania).
Insight #2 Editorial of June 14, 2012.
The ‘No Bail Out’ Plan http://bit.ly/NqQpy2
There is a significant fear as well that the excessive regional spending, The Finance ministers of all five East African
without sustainable forms of revenue, may bankrupt the region with no Community member states are this afternoon
bail out in sight. Increased spending alone cannot stabilize an economy. In expected to table the 2012/2013 Budget
an opinion piece Razia Khan, Head of Regional Research (Africa) with estimates for their respective countries.
Standard Chartered Bank, indicated that it was unlikely that Kenya’s Through their respective legislative bodies, they
announcement of 20% increase in spending for the coming fiscal year will hint on how their governments will go about
collecting revenues with which to support their
would boost its economy.xxvii Kenya, like most of the countries in the
recurrent and development expenditure.
region, is spending a lot more than it earns, a fact exacerbated by the
...Just like during financial year 2011/2012, the
significant gap between exports and imports. Mr. Hira of Deloitte also
ministers will explain how the need to foster
expressed a concern that “we are not necessarily spending in the right development will be addressed amidst yawning
places – we are spending too much on recurrent and not enough on budget deficits largely due to skyrocketing debt
development. This to my mind will not benefit the poor.” bills...
The spending made by the region has also raised some flags for future ...What looks rather curious this time is that at
least 54 per cent of Tanzania’s development
trends. It was reported that the task force responsible for negotiating the
expenditure will go into the servicing of debts,
East African Monetary Union (EAMU) Protocol has ruled out any possibility currently hovering at USD15bn...
of partner states bailing each other out in case of a financial crisis in any
...African states need to severely cut on
one country. “The task force reached a consensus in late July on this conspicuous consumption across all sections of
contentious outstanding issue, deciding that neither the community, nor society. The world has changed and states must
partner state should be liable to bail out each other.”xxviii This agreement operate even more efficiently than the most
will have severe repercussions in the future if the region finds itself in a effective of private companies...
financial crisis, which may occur in light of the spending and lack of a ...Governments and public servants must always
diversified revenue stream. remember that they survive and chiefly thanks
to common Tanzanian and foreign taxpayers’
The no bail out plan will eventually send governments in the region that do money and that planning to lead lives of luxury
not have their fiscal houses in order into a panic when an economic crisis is therefore not an option.
hits. As a result social spending will be reduced affecting large masses of Besides the ongoing common deficit financing
people. Cuts will be made on development spending the allocation often leading to massive debts, government
towards development projects will diminish. This will have severe effects borrowing ought to be played down as a
paradigm for economic development because it
on the poor and vulnerable population. Countries like Rwanda and Burundi
has proved to be more of a curse than a
will bear the brunt of such an outcome since Uganda, Tanzania and Kenya
development agent.
will be banking on revenues from the extractive industries, a serious
East African states must come up with
gamble at the expense of the livelihoods of the poor and vulnerable.
instruments that involve wider participation by
the citizenry rather than merely relying on
donations and borrowed funds, a substantial
portion of which usually serve irrelevant
purposes.
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11. Insight #3
Budgets highlight the disconnect that exists between
government and the people
When Mr. William Mgimwa, the Tanzanian Finance Minister presented the 2012/2013
Budget he stated that the government would create 71,756 jobs in education, health
and agriculture sectors in the FY 2012/2013. This was an important announcement but
“Mr. Speaker, as a was not received positively. This is because of the context that the public sector in
Tanzania has been facing throughout the year. For many Tanzanians, it is hard to
Government that envision job creation in a health industry that just saw intense standoffs between
cares for its doctors, interns and other medical staff with the government over salaries, equipment
and working conditions. Where will the jobs come from if the government is unable to
people, we have cater to the needs and demands of its employees?
once again in the The disconnect that seems to exist within the budget was highlighted by members of
Tanzania’s opposition. “The fact that only 30% of the budget was allocated to
2012/2013 budget development expenditure meant that it was not intended to boost the country’s
allocated KShs. economic growth,” Professor Ibrahim Lipumba of the Civic United Front explained. Mr.
Zitto Kabwe of the CHADEMA party criticized the budget as being for people in urban
9.6 billion to areas, “This is not a budget for people in rural areas” where 30 million Tanzanians live.xxix
continue The message is clear; the budget is not equitable and does not cater to the needs of all
the people.
cushioning the
Across the region, most people feel that the budgets do not reflect their needs and
poor and concerns. They understand that the governments are spending on infrastructure and
vulnerable believe that it will benefit in the long run. However, in the short run they will still have
to deal with high food prices, inflation and an inefficient public sector. Expenditure on
members of our
society as we
design a more
comprehensive
social protection
policy and
programme that
will increase
coverage.”xxx
The$Greater$Horn$Outlook$0$$Issue$#$27,$Page$11
12. education is high in Tanzania but how salaries). The focus on infrastructure is increase in their salaries, from US$
do you explain the teacher’s strike and driven by the region’s strategic push to 3,300 to US$ 4,800.xxxii In August 2012,
the low quality of education? Semkae boost its economic performance and the Speaker of Kenya’s National
Kilonzo of Policy Forum, put it aptly: competitiveness by providing business Assembly, Kenneth Marende, “called for
with a more conducive environment in an increase in MPs salaries [noting that]
“[…]while the country continues to
spend heavily in education which along which to work – better roads, reliable the KShs 851,000 (approximately US$
with health, the government has power and communications. 10,000) was too little compared to
selected as a priority sectors for its what other state officers earn.” xxxiii
However, on the social services front,
development (spending close to 20% of
its budget for education), we have seen teachers and healthcare workers are Secondly, however, the region’s tax
attendance rates improving but pass demanding better pay, putting further revenues lagged the expansion in
rates remaining stubbornly low both in pressure on spending to increase. In spending, leading governments to
primary and secondary schools over Tanzania, doctors went on strike in late- either rely on donor funds for budget
the years (in fact, the pass rates in June and teachers followed quickly support or to borrowing in the
primary and secondary schools have
thereafter at the end of July. In Kenya, domestic money markets. Kenya is the
actually declined since 2007). On this,
the government needs to see how it can (as we write) teachers and university region’s strongest economy and
get better value for money in the lecturers are currently on strike although its domestic revenues are
educational sector.” demanding a wage increase of expected to increase by 19%,
The hopes and expectations of civil between 100% and 300%. ‘borrowing on the domestic market will
society organizations like Policy Forum climb 72% to KShs 106.7 billion (US$
Interestingly, national and regional
did not match the outcome of the 1.24 billion).’ An additional KShs 143.6
legislators who authorize the
Tanzanian 2012/2013 Budget. billion (US$ 1.7 billion) will be raised
appropriation and expenditure of
from external sources.xxxiv While Kenya
“We know roads are important but public funds, have been happy to
receives just 5% of GDP in foreign aid,
allocating about one trillion [shillings] award themselves substantial salary
to road construction and giving the other EAC countries are more donor-
increments. For example, members of
Ministry of Education only Sh700 billion dependent: Tanzania (10% of GDP),
the East African Legislative Assembly
is ridiculous. Good roads are not that Uganda (13%), Rwanda (18%) and
(EALA) were awarded a $1,500 (45%)
important in a country where the Burundi (31%).
majority are uneducated.”xxxi
Ezekiah Oluoch, Deputy Secretary
General - Tanzania Teachers Union
(TTU)
FORESIGHT
This GHEA Outlook has noted the
following important trends.
The squeeze on the poor
and vulnerable will
intensify
First, the EAC budgets continue to
increase their spending, with most of it
allocated to improving transport and
power infrastructure, and on recurrent
expenditure (especially public sector Rwanda’s%President%Paul%Kagame%at%the%Agaciro%Fund%Launch%event,%August%2012
The$Greater$Horn$Outlook$0$$Issue$#$27,$Page$12
13. In these circumstances, the region’s Can Rwanda’s innovative ‘eating’. It would attract all sorts of
poor will be squeezed. On the public criticisms and attacks, right from civil
response, the Agaciro society to the opposition to elements
spending side, they will experience
Development Fund, be within government – all calling for a
continued deter ioration in the
replicated in the GHEA? boycott.
provision of social services, driven by
the reduction in spending on “Some critics will say this initiative is
When Rwanda’s donors cut off their
forced down our throats. They are dead
education and health noted earlier, and support in August as a reaction to the wrong. Otherwise how would you
by the strike action by doctors and country’s alleged support of the M23 explain the response from hundreds of
teachers demanding better pay. At the rebels in eastern DR Congo, President thousands of Rwandans in Diaspora
height of the doctors strike in Tanzania, Kagame launched the Agaciro who are using electronic money
relatives had to take their sick to much (“Dignity”) Development Fund in transfer to make their contribution? On
pricier private healthcare facilities or average, a Rwandan is assured that
August 2012. The Fund is ‘ a solidarity
every coin put in such innovation will
watch them suffer (and die) at home fund initiated by Rwandans to improve serve the rightful purpose and hence [is]
when they could not afford private the level of financial autonomy of worth the sacrifice.
care. Rwanda as a nation. The uniqueness of For the last 18 years, Rwanda has been
Furthermore, as GHEA’s budgets come the fund is that it is Rwandans on a sketch board crafting many
under increasing pressure revenue- themselves that will finance it…setting innovations that have raised
the tone that Rwandans will work controversy but also won admiration
raising measures may harm those on
together to drive their own from many circles. [The] Agaciro
low incomes. Mobile telephony is now Development Fund is [another such
an essential service for everyone and is development, giving the entire
innovation]; one thing Rwandans
not part of a household’s discretionary Rwandan population a higher level of detest a lot, is the word “umugayo” or
spending. When Tanzania’s raises taxes direct ownership in the nation’s room for failure. The Agaciro Fund will
on mobile airtime, the effect is projects.” xxxvi have to flourish.” xxxvii
disproportionately worse for the poor
than the better off. Together with beer,
The fund raised $1.9m in the four hours Endnotes
of its launch and by mid-September,
cigarettes and carbonated drinks, the amount raised had reached $13
i. Issa Haji - Zanzibari Resident (quoted in
airtime has become a soft target for million. This represents about 50% of Tanzania Daily News, 16 June 2012 - http://
governments looking for a relatively the cut in UK’s aid to Rwanda that was bit.ly/ShTAoL)
easy way to raise revenues. announced earlier, but that that has ii. Jamleck Sangi, petty trader, Tazara,
since been restored as part of the UK’s Tanzania (quoted in Tanzania Daily News,
The Kenya government’s proposal to
16 June 2012 - http://bit.ly/ShTAoL)
remove the 16% VAT exemption on a “constructive engagement ” with
iii. Kisero, J (2012) ‘Budgeting boldly for the
variety of basic food commodities and Rwanda over the DRC issue. future or basking in denial’ The East African
farm inputs would have had a negative But can Rwanda’s ambitious effort at http://www.theeastafrican.co.ke/news/-/
impact on the lives of the poor who 2558/1428982/-/mhqutuz/-/index.html
building financial self-reliance be
iv. The Guardian (2012) ‘How East Africa
spend a large share of their income on replicated by other countries in the region’s $34 billion budget affects 130
food.xxxv While it has been shelved for GHEA? This Outlook gives the final million lives’ The Guardian http://
the moment, expect it to reappear in word to analyst Arthur Asiimwe, writing www.ippmedia.com/frontend/index.php?
future budgets, especially when the in The New Times of Rwanda. l=42652
cost of rolling out Kenya’s new v. TradeMark East Africa (2012). ‘Uganda: 2012
“If we brought the debate closer to Budget Breakdown’ http://
constitutional dispensation with
home and suggested a project like the www.trademarksa.org/news/uganda-2012-
multiple levels of devolved Agaciro Fund, say to our brothers budget-breakdown
government becomes apparent from within the EAC, I am cer tainly vi. PwC (2012) “Growing Tomorrow’s Economy:
2013 onwards. convinced it would be turned into a East Africa Highlights”
laughing stock. Debate on every FM vii. The Citizen Team (2012). ‘10 things to smile
station would reduce its purpose to about Mgwimwa’s First Budget’ The Citizen
another avenue or opportunity for http://thecitizen.co.tz/editorial-analysis/37-
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