JOHANNESBURG – Growing debt burdens in the East African countries of Kenya, Rwanda, Tanzania and Uganda are weighing on their fiscal strength and credit quality, Moody's Investors Service said on Monday.
Government debt is highest in Kenya, where Moody's expects it to approach 60 percent of gross domestic product over the next two years. The rise in government debt will be most pronounced in Uganda, where Moody's expects it to increase by six percentage points of GDP to 44.1 percent by 2019.
"Increasing debt burdens and deteriorating debt affordability, even when linked with public investment aimed at enhancing growth and generating foreign exchange to service outstanding debt, constrain fiscal space and weigh on our overall assessment of credit quality in Kenya, Rwanda, Tanzania, and Uganda," said Moody's analyst David Rogovic, co-author of the report.
"Their ability to contain any further rise in debt burdens for the foreseeable future, and direct limited domestic resources toward productive uses will be important credit considerations in all four countries."
Between 2012 and 2017, government debt burdens increased by 13 to 21 percentage points of GDP in all four countries. Measured as a percentage of government revenue, Rwanda has the lowest debt burden but has experienced the most rapid accumulation of debt, reflecting a transition in donor support from grants to concessional loans.
Debt accumulation across the region has been largely driven by wide fiscal deficits, which have been biggest in Kenya due to infrastructure-related spending combined with subdued revenue collection and the rising cost of debt.
Moody's said institutional weakness and limited policy effectiveness would constrain the ability of Kenya, Tanzania, and Uganda to manage higher debt burdens and engineer policy responses to tackle credit pressures, while a stronger institutional and policy framework in Rwanda should allow the government to effectively manage associated risk with a higher debt burden.