Budget deficits plague East African nations

East African nations, Kenya, Uganda, and Tanzania, recently unveiled their annual budgets for the 2023-2024 fiscal year amidst concerns over budget deficits and escalating debt levels. CNBC Africa interviewed Amani Kaneja, a Global Markets Trader at Standard Bank Group, to delve into the implications of these budget presentations. Kaneja provided insights into the financial market perspectives of the budgetary decisions of these East African countries. The key themes that emerged from the interview revolved around domestic revenue targets, borrowing strategies, tax revenue mobilization, and the potential impact on the financial markets in Kenya, Uganda, and Tanzania. Here are the key points discussed in the interview: 1. Domestic Revenue Targets and Borrowing Strategies: Kaneja highlighted the contrasting approaches taken by Uganda and Kenya in their budget allocations. Uganda opted to decrease its domestic borrowing targets, aiming to reduce crowding out the private sector and stimulate economic growth through increased lending. On the other hand, Kenya lowered its external borrowing targets while raising domestic borrowing goals, signaling a shift towards reliance on domestic sources for funding. The move towards commercial borrowing was emphasized in Uganda to offset the decline in concessional funding, while Tanzania sought to boost concessional borrowing to leverage bilateral partnerships and donor support. Overall, the adjustments in borrowing targets reflect each country's unique debt landscape and borrowing capacity. 2. Tax Revenue Mobilization and Business Environment: The interview also touched on the tax authorities' new revenue targets and the implications for businesses in the region. Kaneja discussed the importance of expanding the tax base to formalize the informal economy and introducing innovative taxes to drive revenue generation. Despite the short-term impact of increased taxes on businesses, Kaneja expressed optimism about the long-term benefits of tax revenue mobilization for economic development. The interview emphasized the significance of tax reforms in enhancing the business environment and promoting financial stability in East Africa. 3. Impact on Financial Markets: Kaneja analyzed the potential effects of the budget decisions on the financial markets in Kenya and Uganda. In Uganda, the reduction in domestic borrowing was projected to lower yields and promote cheaper credit access for corporates and individuals. Conversely, Kenya's increase in domestic borrowing targets was expected to raise yields and normalize the market after a period of yield suppression. The discussion underscored the importance of market efficiency and capital allocation in driving economic growth and attracting investor participation. Amani Kaneja also shared insights on the new Central Bank governor in Kenya and the challenges ahead in managing the country's currency amidst market fluctuations. Kaneja highlighted the need for initiatives to enhance market liquidity, investor confidence, and regulatory transparency to revitalize Kenya's financial market and attract investments. As East African nations navigate budget deficits and debt challenges in the coming fiscal year, stakeholders will closely monitor the implementation of budgetary measures and their impact on economic stability and growth prospects.