Dec 4, 2022

Mawazo Writing Africa

Writing about the main

East Africa’s economic recovery prospects facing headwinds

East African countries face further hurdles in their efforts to recover from the impact of the Covid-19 pandemic, heralding tough times for households and businesses.

Rising public debt, rising inflationary pressures, falling tax revenues , weakening currencies and Russia’s invasion of Ukraine have all combined to slow the pace of economic recovery.

East Africa’s situation is being made worse by rising political temperatures in Kenya ahead of August 9 general elections, as neighboring countries fear possible disruption of the supply chain on the Northern Corridor connecting the inland Great Lakes region to the port city of Mombasa.

“If the elections are not peaceful, they could disrupt Uganda’s foreign trade flows and increase the impact of commodity price turmoil,” says the Bank of Uganda (BoU).

The private sector credit growth remains, according to the Ugandan central bank weak and behind historical trends despite full reopening of the economy in January y as rising commodity prices continue to weigh on consumer perceptions of the economy and its near-term prospects.

“Although inflation remains moderate, it is expected to rise sharply. Most of the increase is attributable to higher prices for energy and other tradable commodities,” BoU said in its April monetary policy statement time to dissolve. However, as a result of falling real income, household consumption growth may slow and spare capacity in the economy may remain until FY2023/2024.”

Uganda’s preliminary total public debt was Ush 74. 43 trillion (US$20 billion) in February 2022, up 16.3 percent from the same period in 2021.

Kenya is experiencing a weak recovery, mainly driven by the high cost of living due to increased Food and fuel prices are due to debt, corruption by state officials, election nervousness and the flagging shilling which has fallen to a record low of Ksh 116 per dollar.

The national debt stood at 8.4 in March 2022 Trillion Ksh ($72.41 billion). .

According to a note from the Kenya Bankers Association’s Center for Research on Financial Markets and Policy, Kenya’s strong economic recovery in 2021 is at risk of slowing down in 2022 due to unfavorable weather conditions, higher oil prices and weak business activity associated with periods of election campaigns.

Doing a downward spiral

“Upward inflationary pressures have continued to build due to rising oil and food prices, as well as the direct impact of a weaker currency via imported inflation. The three inflation drivers continue to underpin higher near-term inflation expectations that are strong enough not to be ignored.”

Elevated credit risk combined with rising inflation outcomes and expectations point to credit growth at risk, further constrained while fiscal consolidation may not be feasible as economic activity may slow amid government spending pressures.

The Central Bank’s Monetary Policy Committee is expected to meet on May 30, 2022 to review economic developments and set an appropriate key interest rate to protect the economy from a possible downward spiral.

“External sector imbalances are projected to worsen, highlighting the economy’s vulnerability to global market developments and the policies of advanced people economies to raise interest rates,” the statement said.

The weakening of the Kenyan shilling was exacerbated by excessive demand for the dollar, based primarily on the reco of economic activity, which has meant more imports, rising fuel import bills and net stock market selloffs amid a dwindling supply of foreign exchange as exports have remained poor.

Kenya Association of Manufacturers and Cereal Millers have raised concerns about the biting shortage of corn and wheat and argue that if left unchecked this will lead to a food crisis, which will further drive up the prices of these commodities and worsen inflation.

In Tanzania, fuel prices have been on the rise since June 2020 an upward trend mainly related to the increase in oil prices in the world market, while lending to the private sector w ar and achieved average growth of 11.8 percent in the quarter ended March 2022, compared to 2.5 percent in the same period in 2021, according to the Bank of Tanzania (BoT).

In Rwanda, the economy grew 10.9% in 2021 after contracting 3.4% in 2020, helped by substantial fiscal and monetary policy support, mitigating Covid-19 containment measures, improv global and regional economies, and good weather conditions.