Rf27 ea budgets

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Rf27 ea budgets

  1. 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 $34 billion for whom? How do EA’s budgets affect the poorand vulnerable? the Piper The$Greater$Horn$Outlook$0$$Issue$#$27,$Page$1
  2. 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”iiRefurbishing$dilapidated$infrastructure$is$a$key$priority$in$the$East$African$budgets$for$the$201202013$period. The$Greater$Horn$Outlook$0$$Issue$#$27,$Page$2
  3. 3. The 2012–2013 EastAfrican BudgetsMain Elements such as high inflation rates, unreliable of foreign financing. What happens power supply, food prices, increased when the funds dry up or whenThe East African budgets total an lending rates and high unemployment support is withheld due to politicalestimated $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 andbillion, Uganda will spend $4 billion their Implicationsfollowed by Rwanda with $2.8 billion. It Despite regional media outlets andis no surprise that Kenya’s budget is the analysts describing the East African The main elements in the budgetslargest in the region but it depends far budgets as bold, there has been delivered by Kenya, Tanzania, Ugandaless than its neighbors, specifically significant criticism. Two factors that and Rwanda were: maintaining andRwanda 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 interestUganda, most of the region’s budgets much these countries are in debt and rates, reduce the cost of doingrely 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 ein size they do not differ significantly in increasing importance of naturalboth priorities and challenges they Uganda and Kenya finance their resources are evident, especially inface. The budgets demonstrate budgets between 76-86% through Kenya, Tanzania and Uganda with theirsignificant 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, butmaintain the rapid economic growth all 2012/2013 budget is the highest in the strategies and budget implications arethe 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, youthChallenges to effective implementation support as well as $1.5 billion in foreign employment, information technologyof 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 $244.3 million The Government hopes that its The$Greater$Horn$Outlook$0$$Issue$#$27,$Page$3
  4. 4. investment in the Youth Venture Port of Mombasa was brought up. The • Government will increase labourCapital Fund would provide ways to Finance Minister of Kenya only absorption of youth includingreduce youth unemployment.v mentioned the Port of Mombasa twice training and passing work experience and enhancing theAccording to Pricewaterhouse Coopers in his budget speech, which was quite private sector employability ofUganda: “ Transport, energy and peculiar considering the difficulties the youth.education continue to take the lion’s port has experienced over the past 18share 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 2012/2013Notably, percentage budget allocation Kenyan budget is the most apt, it Expenditurefor 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 was8.3% to 7.8% despite growing criticism transitional budget. To take this further, plagued with challenges and crises thatthat it continues to fall short of 15% is this a lame duck budget that will only slowed down its GDP growth. The foodt 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 powerDeclaration.” Agriculture is clearly an fully in an election year? outages weakened the Tanzanianimportant anchor for transforming Education receives a 9% increase and shilling and increased inflation andU 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 describescreation. In order to accomplish this, poor and vulnerable as KPMG outlines: Tanzania’s budget for FY 2012/2013 asthe Ugandan Government believes that upbeat despite a drop in budgetaryensuring food security will keep the • 1.1Kshs billion ($12 million) for a allocation towards developmenteconomy on its current trajectory and bursary program for poor orphans expenditures from 38% to 30% whichprevent an economic slowdown. and children from poor households in secondary schools and KShs 300 would have a negative impact on theKenya’s 2012/2013 Vision: A million ($3.5 million) for sanitary poor and vulnerable. The mainTransitional Budget towels for primary school girls; priorities of the 2012/2013 budget are to maintain and increase economicOf all the budgets in the region, Kenya’s2012/2013 budget is the mostimportant and in many ways has the EA#Budget#Expenditure#by#Sector,#201282013most implications for the region. Thisbudget will have to oversee Kenya’spresidential elections and its continued 1.1$%bn.expensive devolution process.The Kenyan Government’s priorities forFY 2012/2013 are strengthening thefinancial systems by continuing the 5.9$%bn.implementation of legislative and 4.1$%bn.institutional reforms, increasinginfrastructure investments and “makinggrowth and development moreinclusive and equitable across thecountry.”vi In order to accomplish this,the government plans to reform thepublic sector, improve law enforcement 1.9$%bn. Infrastructureand improve efficiency at the port of HealthMombasa. Interestingly enough, not a Educationlot of information or discussion of the Agriculture The$Greater$Horn$Outlook$0$$Issue$#$27,$Page$4
  5. 5. growth, increase the availability of foreign aid and support to its budget. distributed across the four sectors. Allfood, reduce inflation rates and The Finance Minister John Rwangobwa of the Finance Ministers, during theirstrengthen revenue collection as well explained as much: budget speeches, indicated the mainas creating employment for the youth. priority is infrastructure development. “We continue to increase our domesticIn an attempt to soften the blow of resource mobilization in order to The region will spend almost $6 billionreduced allocation of the development finance an increasing share of our in FY 2012/2013 on infrastructure public expenditure and reduce theirexpenditure, the government waived development and $4.1 billion on reliance on external support.” viiithe presumptive tax on businesses with education. Health expenditures area 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 dis designed to support small businesses attractive business destinations in the agriculture, perhaps due to a shift inand 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 theRwanda 2012/2013 Vision: budget, it plans to increase spending budget picture above does not tell theReducing Donor by 16% and as a result will review its whole story of the priorities laid downDependence investment and tax codes in order to by the East African budgets, increase revenue to pay for its considering there are other sectors notRwanda’s budget priorities for the increased spending. It may be too soon examined, the priorities are clear with2012/2013 will mainly focus on to tell but Rwanda will have to strike ainfrastructural 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 onurbanization and maximizing revenues foreign aid and tarnishing its label offrom tourism and mining. One of themain challenges that Rwanda will be being an attrac tive investment $34 BILLION FOR destination.facing is trying to expand domesticrevenues to reduce its reliance on The pie chart above provides a sense of WHOM? where the budget expenditures are WILL THESE BUDGETS AFFECT THE LIVES OF THE POOR AND VULNERABLE? Professional commentators sometimes provide analysis of winners and losers from specific budgets. For instance, infrastructure development and education is the clear winner in all of the East African budgets because they appropriated significant funds that spell out a long-term commitment. What is clear throughout the region is that social services have not been a priority. For some countries, even, healthcare spending has been too low to meet the demand. For example, in Tanzania health care spending is far less than the WHO recommendation.ix The$Greater$Horn$Outlook$0$$Issue$#$27,$Page$5
  6. 6. There are key issues within the four agriculture, roads and energy; and with Uganda’s National Developmentbudgets 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 capitaldemonstrate a deferral in prioritizing in this assessment, one, the fair development, primarily education, takethe 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 anin the health and education sector, in through better school inspections. article by the Daily Monitor titled ‘Is theKenya the proposed changes to the budget aligned to the country’s The fair distribution of resources is aVAT caused a significant uproar, a lack development plan?’ questions are timely theme especially in light of theof addressing issues of the youth and raised about whether infrastructure is new discoveries of gas in Tanzania. Thewomen unemployment in Rwanda, and really enough to achieve sustainable fair distribution of resources isan apparent disconnect in Uganda’s development in the country. Road associated with the health sector butvision from the demand required to projects and infrastructure can easily be applied to a variety ofimprove development. development are highly political in sectors: Uganda and in an ideal world “theHealth and Education Gaps “To promote social justice, we urge the selection of the roads should be basedin Tanzania Government to consistently apply the on their expected economic and social allocation formula for theAccording to Mr. Simon Moshy of disbursement of the health block grant returns,” rather than political ones.xiiSikika, a civil society organization that and the health basket fund from the The choices made on where to buildadvocates for accountability in the beginning of the next fiscal year.”xi roads and improve infrastructurehealth sector in Tanzania, the Tanzanian In addition to this the issue of projects are based heavily on politicalgovernment has consistently faced a education and the quality of it has considerations and promises madeproblem of funding and distribution of become an issue that hasn’t gone away. during an election cycle. As the articleessential 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 onesAugust 2011 showed that from 100 education has been one sector that the to the detriment of vulnerableinquiries for a specific essential government of Tanzania has been populations that have limited access tomedicine 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 andThe Policy Forum Working Group, established a narrative in the country effective poverty reduction plan in therepresenting over 100 different civil that education is not a priority or funds region. However, the problem withsociety organizations, produced a pre- are not available. It was in this context, Rwanda’s 2012/2013 budget andbudget 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 donordiscern the gaps that exist between nationwide strike in protest of low support. This is all well and good untilwhat civil society groups expected salaries and not enough benefits. The the inflow of capital gets a shock, suchfrom the budget and what was strike symbolized a public sector under as the global financial crisis and theprovided. Key areas of concern were: siege with young children sitting idly in current Eurozone Crisis. Things also getrequirement for a free distribution of front of the newspapers. complicated when general budgetresources, improving the quality of Uganda’s Development Plan support gets political with the currenteducation through better school diplomatic crisis between Rwanda, theinspections, effective use of resources Gaps Democratic Republic of Congo and thein the agriculture sector, allocation to Broadly speaking the Ugandan budget international community who havekey sectors in education, health, water, prioritizes key sectors that are aligned The$Greater$Horn$Outlook$0$$Issue$#$27,$Page$6
  7. 7. decided to withhold funding which has had a direct impact on Rwanda’s 2012/2013 budget and its poverty reductionstrategy.ActionAid and the Institute of Policy Analysis and Research (IPAR) were two institutions that examined the Rwandan2012/2013 budget. They label the budget as having a ‘pro-poor character’ and commended the Rwandan government forincreasing 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.”xiiiAgriculture 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. Theconcern, however, is to ensure rural women smallholder farmers can continue to meet the daily food requirements in theirrespective households. “The downside risk to agricultural commercialization is the failure of women to put food on the tableas 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 necessaryprotection from the government.ActionAid and IPAR believe that the budget is limited in addressing specific measures and strategies that will result in thecreation 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 sometimesduplicated, scattered under different government institutions, and are not coordinated well enough to create the huge jobnumbers (2.5 million) needed to make Rwanda a middle income country by 2020.”xv The trouble here, as indicated in aprevious newsletter (see GHEA Outlook #22 Being Young in the GHEA), is that a disconnect exists between Rwanda’s relentlessinvestment 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 theywould prefer a more individualist approach. Since agriculture is the most collectivized form of improving livelihoods inRwanda, there will be some challenges in achieving the 2.5 million jobs needed to make Rwanda a middle-income countryby 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.” xviiThe VAT 2012 Bill also includes the standard rating of fuels and fuel oils that would be put into effect after a grace period ofthree years. Deloitte believes that such a tax would be unfortunate, as it would see an increase in fuel prices and inflation by2015 affecting the cost of living for many Kenyans. This would seem contradict Kenya’s 2012/2013 priorities of “making The$Greater$Horn$Outlook$0$$Issue$#$27,$Page$7
  8. 8. South Sudan growth and development more inclusiveParliament Passes and equitable across the country.” xviii SUDAN ANDAusterity Budget The reactions to the VAT Bill 2012 were mostly negative: SOUTH SUDANExcerpt from VOA News – Thursday July 19, “Due to the fact that low income WHEN THE MONEY DRIES UP2012 segment spends a significant proportionhttp://bit.ly/Olg8nq of their income on food items, the VATSouth Sudan’s Parliament passed a budget Looking more broadly at the region’s will put the necessities beyond theirof 6.6 billion South Sudanese pounds for reach.” xix financial status, it has been a tumultuous2012-2013 on Thursday. The budget is lessthan last year’s budget, which was 10 (Bosire Nyamori, Africa Bureau of Tax) year for Sudan and Africa’s newestbillion pounds. country South Sudan. Both countries O ther groups insisted that theyThe biggest cuts came in foreign travel, have been in a constant state of tension understood why the governmentsalary bonuses, overtime, and housing since South Sudan became independentallowances for government employees, needed to find new ways of increasingincluding the army and organized forces. in July 2011. The two countries have tax revenues but indicated that it shouldCivil service salaries account for the been at odds since January 2012, whenbiggest part of the budget, followed by not be done at the expense of the poor the oil that was essentially going to payspending on security and the judiciary. and vulnerable. Under the VAT Bill 2012, for each countries’ economic andSouth Sudan is operating on what has the burden of payment falls heavily andbeen called an austerity budget, due to the political survival was switched off by disproportionately on low-incomeshutdown in January of oil production, South Sudan. The result has been anwhich accounted for 98 percent of households rather than higher incomegovernment money. While presenting his economic disaster. ones.budget proposal to parliament earlier this The Economist reported that “theyear, Finance and Economic Planning “Vice Chairman of the ParliamentaryMinister Kosti Manibe warned against Public Accounts Committee Thomas shutdown has crippled both countriesoverspending, which he said could lead to Mwadeghu said that the VAT will and inflation [in the South] has climbeda government deficit. increase the cost of living especially from 20% to 80% and as a result thereManibe said, “I call upon the august house among the poor.” xx has been a serious slide in currency andto ensure the implementation of the PublicFinance Management and Accountability The dilemma here is that the Kenyan the government has ignored calls toAct passed last year to ensure transparencyand discipline in the implementation of the government is seeking alternate and adopt the dollar, making life difficult forbudget.” creative ways to increasing its revenues the vulnerable populations.” xxii TheJok Madut Jok, the Director of the Sudd but it also hopes that the 2012/2013 Economist, along with many economicResearch Institute and an undersecretary in budget will keep inflationary pressures and political analysts, predicted that bythe 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 itsthat the security budget was virtually payroll. Fortunately, this has not come to would do neither.unchanged. pass as both countries were able toHe said the budget will result in a “marked “The implementation of the Bill could bereduction” in service delivery, “especially in the worst thing that happened to the strike a deal after an agreement wasthe area[s] of education, security and Kenyan economy in recent times. Apart reached on how much South Sudanhealth 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 throughgoing to be so great in the lives of the unimaginable levels, it will slow down nor thern pipelines. Up until themajority of the people who are not getting the current economic growth since most agreement, the north was demandingany benefits anyway, in terms of salaries people will slide back into poverty"xxibeing 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 theand civil service.”‘’This is a budget that [would have] pleased southern oilfields whereas Juba was onlythe people if had it been implemented In the end, the VAT Bill 2012 was willing to pay $3 billion.xxiiimany years back,” he explained. “You are withheld pending further discussionsnow doing austerity simply because there Oil production from South Sudan willis no money.’’ and assessments. not commence until December and first The$Greater$Horn$Outlook$0$$Issue$#$27,$Page$8
  9. 9. payments will be unlikely until early United Kingdom suspended $25 to developing countries, with total aid2013.xxiv The damage has already been million in budgetary support, Germany failing 3% last year”xxvidone with high inflation, a weakening $26 million in contributions to The focus has been primarily oncurrency that directly affects the Rwanda’s budget planning from Rwanda due to the political nature oflivelihoods of the South Sudanese. The 2012-2015 and the Netherlands $6.2 the current diplomatic crisis, howeverstandoff between the two countries million earmarked for judiciary reform. the GHEA should heed the warninghas to be seen as a warning sign to the Rwanda has been forced to think signs. Aside from Kenya’s moreregion 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%) havegas 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 thesignificant reliance on oil, lessons formulating its own resilience strategy, donor support continues flowing. Thisshould be learned about the risks of a Rwanda launched a multimillion-dollar becomes risky business for countriesresource-based economy. South Sudan fund to raise capital for key that have hedged their bets onwas forced to pass an austerity budget development projects. It is mobilizing unmitigated support from Europe andin July 2012 that reduced spending in domestic resources from citizens to the Eurozone crisis has essentiallyvirtually 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 theirsecurity 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 RwandaIn 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-facearticle that demonstrated the “I think donor funding is going to Rwanda’s has experienced from its become increasingly difficult preciselypredicament Rwanda has found itself long-term allies. What is missing from because the traditional donors arein regarding the current diplomatic the discourse is the fact donors can no having financial issues. There will comecrisis it is facing with the DRC and longer shell out the large funds for (if it hasn’t already) a point where theinternational community. After a UN developing countries like they used to. citizens in donor countries are going toGroup of Experts published a report question funding of third world Taking this further, the GHEA can nothat implicated Rwanda as being the countries where there are governance longer rely heavily on donor funding and corruption issues. […] The movesource of weapons, intelligence and and general budget support if it hopes towards the East will be inevitable andfunds for the M23 rebel group in to achieve sustainable development. indeed has started. China has set asideeastern DRC, a flurry of governments The 48% accounting of donor-funded US$ 20 billion for Africa and I believeand partners suspended aid to the support of the budget is unsustainable India US$ 5 billion. Both these countriesRwanda, the least being the more have a huge need for the natural and Rwanda knows this. The questionsymbolic $200,000 cuts in military aid resources in Africa – particularly oil – to is whether regional governments are fuel their domestic economies.by the US. More substantially was the paying attention to the writing on the Unfortunately governance questionswithholding of funds by donors that wall. “The Euro Crisis has forced are not then going to be high on thewere directed to the budget. The developed countries to reduce their aid agenda.” The$Greater$Horn$Outlook$0$$Issue$#$27,$Page$9
  10. 10. The trouble with the ‘Look East’ policy is that the priorities would be onsupporting ‘hard’ infrastructure projects and deviate away from the ‘soft’ East African governmentissues that directly affect the poor and vulnerable. Anytime cuts to a budgets: Anything tobudget have to be made, it is the social contracts with the people that gofirst. boost morale? Excerpted from The Guardian (Tanzania). Insight #2 Editorial of June 14, 2012. The ‘No Bail Out’ Plan http://bit.ly/NqQpy2There is a significant fear as well that the excessive regional spending, The Finance ministers of all five East Africanwithout sustainable forms of revenue, may bankrupt the region with no Community member states are this afternoonbail out in sight. Increased spending alone cannot stabilize an economy. In expected to table the 2012/2013 Budgetan 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, theyannouncement 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 theirwould 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, thesignificant gap between exports and imports. Mr. Hira of Deloitte also ministers will explain how the need to fosterexpressed a concern that “we are not necessarily spending in the right development will be addressed amidst yawningplaces – we are spending too much on recurrent and not enough on budget deficits largely due to skyrocketing debtdevelopment. 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 developmenttrends. 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 onone country. “The task force reached a consensus in late July on this conspicuous consumption across all sections ofcontentious outstanding issue, deciding that neither the community, nor society. The world has changed and states mustpartner state should be liable to bail out each other.”xxviii This agreement operate even more efficiently than the mostwill 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 alwaysdiversified 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 luxurynot 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 financingpeople. Cuts will be made on development spending the allocation often leading to massive debts, governmenttowards development projects will diminish. This will have severe effects borrowing ought to be played down as a paradigm for economic development because iton the poor and vulnerable population. Countries like Rwanda and Burundi has proved to be more of a curse than awill 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 withgamble 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. The$Greater$Horn$Outlook$0$$Issue$#$27,$Page$10
  11. 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 to2012/2013 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. 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 NationalKilonzo 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 willsociety organizations like Policy Forum climb 72% to KShs 106.7 billion (US$ Interestingly, national and regionaldid not match the outcome of the 1.24 billion).’ An additional KShs 143.6 legislators who authorize theTanzanian 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) FORESIGHTThis GHEA Outlook has noted thefollowing important trends. The squeeze on the poor and vulnerable will intensifyFirst, the EAC budgets continue toincrease their spending, with most of itallocated to improving transport andpower infrastructure, and on recurrentexpenditure (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. 13. In these circumstances, the region’s Can Rwanda’s innovative ‘eating’. It would attract all sorts ofpoor will be squeezed. On the public criticisms and attacks, right from civil response, the Agaciro society to the opposition to elementsspending side, they will experience Development Fund, be within government – all calling for acontinued deter ioration in the replicated in the GHEA? boycott.provision of social services, driven bythe reduction in spending on “Some critics will say this initiative is When Rwanda’s donors cut off their forced down our throats. They are deadeducation and health noted earlier, and support in August as a reaction to the wrong. Otherwise how would youby the strike action by doctors and country’s alleged support of the M23 explain the response from hundreds ofteachers demanding better pay. At the rebels in eastern DR Congo, President thousands of Rwandans in Diasporaheight of the doctors strike in Tanzania, Kagame launched the Agaciro who are using electronic moneyrelatives had to take their sick to much (“Dignity”) Development Fund in transfer to make their contribution? Onpricier private healthcare facilities or average, a Rwandan is assured that August 2012. The Fund is ‘ a solidarity every coin put in such innovation willwatch 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 beenFurthermore, as GHEA’s budgets come the fund is that it is Rwandans on a sketch board crafting manyunder increasing pressure revenue- themselves that will finance it…setting innovations that have raised the tone that Rwandans will work controversy but also won admirationraising measures may harm those on together to drive their own from many circles. [The] Agacirolow incomes. Mobile telephony is now Development Fund is [another suchan essential service for everyone and is development, giving the entire innovation]; one thing Rwandansnot part of a household’s discretionary Rwandan population a higher level of detest a lot, is the word “umugayo” orspending. When Tanzania’s raises taxes direct ownership in the nation’s room for failure. The Agaciro Fund willon mobile airtime, the effect is projects.” xxxvi have to flourish.” xxxviidisproportionately worse for the poorthan 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 inairtime 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 thevariety of basic food commodities and Rwanda over the DRC issue. future or basking in denial’ The East Africanfarm 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 Africaspend a large share of their income on replicated by other countries in the region’s $34 billion budget affects 130food.xxxv While it has been shelved for GHEA? This Outlook gives the final million lives’ The Guardian http://the moment, expect it to reappear in word to analyst Arthur Asiimwe, writing www.ippmedia.com/frontend/index.php?future budgets, especially when the in The New Times of Rwanda. l=42652cost of rolling out Kenya’s new v. TradeMark East Africa (2012). ‘Uganda: 2012 “If we brought the debate closer to Budget Breakdown’ http://constitutional dispensation with home and suggested a project like the www.trademarksa.org/news/uganda-2012-multiple levels of devolved Agaciro Fund, say to our brothers budget-breakdowngovernment becomes apparent from within the EAC, I am cer tainly vi. PwC (2012) “Growing Tomorrow’s Economy:2013 onwards. convinced it would be turned into a East Africa Highlights” laughing stock. Debate on every FM vii. The Citizen Team (2012). ‘10 things to smile station would reduce its purpose to about Mgwimwa’s First Budget’ The Citizen another avenue or opportunity for http://thecitizen.co.tz/editorial-analysis/37- The$Greater$Horn$Outlook$0$$Issue$#$27,$Page$13
  14. 14. tanzania-top-news-story/23186-10-things- xviii. PwC (2012) “East Africa Budget Analysis http://africaresearchonline.wordpress.com/ to-smile-about-mgimwas-first-budget.html and Highlights” http://www.pwc.com/ 2012/08/13/east-africa-monetary-union/viii. Namata, B (2012). ‘Rwanda to review too en_KE/ke/pdf/kenya-budget-2012-east- xxix. The Guardian (2012) generous tax incentives’ The East African african-community.pdf xxx. Budget statement for the fiscal yearix. Policy Forum (2012). ‘Health spending in xix. Njoroge, R. (2012) “Kenya’s civil society 2012/2013 - Mr. Robinson Njeru Githae, Tanzania is still far less than what is opposes VAT Bill” The New Times http:// Minister for Finance, Kenya recommended by the World Health www.newtimes.co.rw/news/index.php? xxxi. Mchome, E and Gregory S (2012). Organization” http://www.policyforum- i=15087&a=57162 ‘Education not a priority anymore?’ The tz.org/node/8563 xx. Ibid Citizen http://www.thecitizen.co.tz/x. Ibid xxi. Liloba, H. (2012) ‘Kenya VAT Bill Runs into magazines/-/23312-education-not-a-xi. Policy Forum (2012). ‘Budget working Headwinds’ East African Business Week priority-anymore group pre-budget statement: A call for an http://allafrica.com/stories/ xxxii.Kiplang’at, J. (2012) ‘EALA’s call on budget’ equitable and just budget’ http:// 201208070075.html The Citizen http://www.thecitizen.co.tz/ www.policyforum-tz.org/node/8532 xxii. The Economist (2012) ‘South Sudan: news/49-general-elections-news/25487-xii. Obwona, M. (2012). ‘Is the budget aligned Unhappy Birthday’ The Economist http:// ealas-call-on-budget.html to the country’s development plan? The www.economist.com/node/21558590? xxxiii.Leftie, P. (2012) ‘Speaker says MPs deserve Daily Monitor http://www.monitor.co.ug/ fsrc=scn/tw/te/ar/unhappybirthday an increase in their salaries’ The Citizen Magazines/ThoughtIdeas/Is+the+budget xxiii. Ibid http://thecitizen.co.tz/news/-/25179- +aligned+to+the+country+s xxiv. Reuters (2012) ‘Sudan currency falls after speaker-says-mps-deserve-an-increase-in- +development+plan+/-/ hope for oil revenues fade’ Reuters http:// their-salaries 689844/1428996/-/view/printVersion/-/ af.reuters.com/article/investingNews/ xxxiv.McGregor, S. (2012) ‘East Africa nations wkmk3az/-/index.html idAFJOE87R04Q20120828 boost budgets, borrowing to shield growth’xiii. ActionAid (2012) ‘ActionAid and IPAR xxv. Namata, B (2012) ‘Rwanda to raise capital Bloomberg http:// Commend Proposed 2012/2013 Budget, through a local fund’ The East African www.businessweek.com/news/ Critical Areas Must be Addressed for August 18-24, 2012. 2012-06-14/east-africa-nations-boost- Sustainable Poverty Reduction’ ReliefWeb xxvi. Thiong’o, P (2012). “EAC economies feeling budgets-borrowing-to-shield-growth http://reliefweb.int/report/rwanda/ the pinch of Eurozone crisis” The East xxxv. IRIN (2012) ‘Kenya: Looming tax break loss actionaid-and-ipar-commend- African http://www.theeastafrican.co.ke/ alarms farmers’ http://www.irinnews.org/ proposed-20122013-budget-critical-areas- business/EAC+economies+feel+the+pinch Report/96241/KENYA-Looming-tax-break- must-be-addressed +of+Eurozone+crisis/-/2560/1482410/-/ loss-alarms-farmersxiv. Ibid 130l1un/-/index.html xxxvi. See the Agaciro Development Fundxv. Ibid xxvii.Khan, R. (2012) ‘Increased spending Website: https://www.agaciro.org/Agaciro-xvi. Deloitte (2012) ‘The Value Added Tax Bill unlikely to lift Kenya’s economy” The East Development-Fund-raises-1 2012: Back to the Future?” http:// African http://www.theeastafrican.co.ke/ xxxvii. Asiimwe, A. (2012) ‘Agaciro Fund, why it www.deloitte.com/assets/Dcom-Kenya/ news/Increased+spending+unlikely+to+lift might be impossible elsewhere’ The New Local%20Assets/Documents/Budget +Kenya+economy/-/2558/1428986/-/ Times http://allafrica.com/stories/ %202012/Deloitte_VATBill2012.pdf pujyg4z/-/index.html 201209060357.htmlxvii. Ibid xxviii.Africa Research Online (2012) “East Africa Monetary Union? Africa Research Online The%Greater%Horn%Outlook%is%published%by%the%Society%for%International%Development%as%part%of%the%Searchlight%and%Trend% Monitoring%Project%of%the%Rockefeller%Foundation. Disclaimer:%The%views%expressed%in%this%publication%do%not%necessarily%reflect%the%views%and%opinions%of%the%Rockefeller% Foundation%nor%of%the%Society%for%International%Development. Photo$credits:$US#Army#in#Africa,$Pages$1$&2;$Svenn#Torfin/Panos#Pictures,$page$7;$Sustainable#Sanitation,$Page$11;$ alexengwete.blogspot.com,$page$12 ©$Copyright,$2012$0$Society$for$International$Development.$Permission$should$be$sought$from$SID$prior$to$reproducing$portions$of$this$ work$in$any$form$or$by$any$means.$Permission$will$normally$be$granted$on$condition$that$the$source$is$acknowledged. Society for International Development | via Ardeatina 802, Rome, 00178 | Italy www.sidint.net twitter: @SidEastAfrica The$Greater$Horn$Outlook$0$$Issue$#$27,$Page$14

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