Kampala. Burundi has joined the group of nine African countries at a high risk of debt distress.
Debt across East Africa continues to grow - with Kenya’s risk of default increasing from ‘low’ to ‘moderate.’
So far Kenya, Uganda and Tanzania are among the top 50 countries in the world that are highly indebted to China, according to a US-based research firm, Brookings Institution. According to Brookings, such countries Uganda inclusive, are now shifting away from official multilateral creditors to non-concessional, (commercial) debt with relatively higher interest rates and lower maturities.
The trend is raising concerns around debt sustainability given the possibility of higher refinancing risks and foreign exchange risks.
This has forced the International Monetary Fund (IMF) to raise a red flag over the rate at which East African countries are accumulating debt. The region’s economies have fallen into a financial fix as they attempt to fund persistent budget deficits and implement mega infrastructure projects against a backdrop of declining revenue collection. As a result, the economies have resorted to massive borrowing, both from the domestic and international markets to quench their loan appetite, with fears that the increasing uptake of commercial loans could push most of them into debt distress. “An over-reliance on commercial public debt exposes sovereign balance sheets to greater rollover and exchange rate risks. Also, an increase in debt from domestic creditors could crowd out financing for private sector projects,” the IMF says. The IMF, in its regional economic outlook report for sub-Saharan Africa released last week, says surging public debt-to-GDP ratios for Uganda, Burundi, Kenya, Rwanda and Tanzania has the countries highly exposed to greater rollover and exchange rate risks.
“With several countries facing increased foreign exchange and refinancing risks, it is critical to enhance debt management frameworks and transparency,” says IMF.