Should EAC look beyond the Greece debt crisis to China?

Jul 06, 2015

The sh3.3 trillion infrastructural budget, for instance, heavily relies on Chinese public and private sector funds and lending.



By Julius Mishambi

My personal assessment indicates that even when hurriedly passed, the FY 2015/16 Uganda budget of sh24 trillion can only be achieved to the extent of effects of global economic outlook and financial disposition, so far across Europe and Asia.


Having started earlier as a financial crisis, Greece, for instance, had by 2008 become an icon of Europe’s debt crisis and attendant economic gaps in PIGS (Portugal, Italy, Greece, Spain)- and sometimes Ireland and Great Britain.

Ireland alone had by end of 2010 registered the world’s biggest budget deficit of about 32% of Gross Domestic Product (GDP) - with Uganda at about 4% then. So, Greece was only awaiting formal default on debt repayment obligations, worth $1.8b by July 2015, particularly to International Monetary Fund (IMF).

With citizen’s “Yes” or “No” vote in Greece, the form of response by multilaterals like World Bank, European Central Bank, IMF and bilateral states like German, Ireland, France and Italy will, for EAC determine levels of bank resources for lending,  loss by East African tourism circuits, household disposable incomes, aid (ODA), local employment and taxation thereof.

It will also precipitate in level of foreign exchange earnings from exports, access to development funds and meeting our debt payment obligations. The effect may span across FY 2015/16 to medium-term growth for Uganda and wider East African Community (EAC) prospects.     

Yet, the imperative of global economic issues pertaining to sh24 trillion Uganda budget needs to go beyond Europe to include Asia. Asia relates more directly to our investment portfolio than Greece.

The sh3.3 trillion infrastructural budget, for instance, heavily relies on Chinese public and private sector funds and lending. With an approximate wipe out/ loss of $2.3 trillion of investors’ wealth between mid and end of June 2015, Chinese stock market has already fallen by over 20%.

The implication may ripple a stumble through failure by individual construction firms, banks and related entities to honour their lending obligations or even complete investment contracts in Uganda and EAC at large. Such entities may rather liquidate some of their holdings, in order to secure their collaterals and/ or mitigate debt payment limitations to financial institutions e.g. banks, insurance and capital markets.

Foreign Chinese public offshore investments, opening her markets to international capital markets and international development financing windows to nations like in EAC, may progressively shrink. Such lies the danger of over-reliance on someone else’s money to finance 55.5% of our sh24 trillion Uganda budget, including non-concessional borrowing. 

Greece having suffered the IMF/WB harsh economic reforms in 2000s and Uganda in 1990s and 2000s, we may still wish to ponder about how best the relative macro-economic stability can be guarded. This may be through responsible, prudent and accountable borrowing and spending, reversal of Government wastage and abuse of tax payer resources.

The stumbling across European economies and China is real. Then Government may be tempted to further domestic borrowing. This will have an overall adverse implication on price stability- inflation, exchange rate and interest rate, on economic growth and development. We need to re-think, for Pan Africanist budget initiatives that maximise intra-trade, bureaucratic efficiency, small-holder high value agriculture and finished-products export sector (e.g. coffee, minerals).

Others are multi-country funding infrastructural inter-connectivity, information exchange against illicit financial flows, security capability, leadership development, policing and timely response across EAC. 

For Uganda, unless for productive investment, public debt of over sh18 trillion in FY 2015/16 contributes to eroding Ugandan economy and expanded budget deficit, given economic challenges in Europe and Asia.

The writer works with the Uganda Debt Network

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