Earlier this month, the East African Community met for Budgets Day on June 11th, bringing together the budget planning of Kenya, Tanzania, Uganda, and the two new members which joined in 2007, Rwanada and Burundi. During the meetings, Kenya’s Finance Minister Kenyatta spoke about how the global recession has affected Kenyan exports (especially in the horticultural sector) and tourism.
The East African countries are looking for ways to mitigate the exogenous shocks from the global crisis. The African Development Bank estimates that Africa’s export revenues will decline by $250 billion this year. Moreover, remittances, which are usually resilient, are declining. This is an ominous sign for some of the poorest countries in Africa, where remittances finance some of the very poor and form a substantial chunk of GDP.
Because of the fall in foreign aid due to the recession, the East African states are increasingly relying on domestic sources for budget funding. James Musoni, Rwanda’s Minister of Finance, said that grants represent 20% of budget revenue, external borrowing 8%, and domestic revenue 51%. Uganda is also relying more on itself; whereas before more than 60% of funding was foreign, now 67% of the total budget is financed locally.
Meanwhile, Western countries are falling short on their aid promises. In a recent report backed by Bill Gates and the Archbishop Desmond Tutu on how much aid the eight leading economies give to Africa, Italy and France are criticized for not meeting their promises. In 2005, Italy made ambitious pledges at the G8 Summit, but since then it has actually cut aid. Italy promised $21.5 billion to Africa by 2010, but only $7 billion has been paid over.
Oftentimes developing countries have difficulty planning their budgets, because so much of the aid that is pledged is not forthcoming; it is delivered with significant delays and is less than promised. For this reason, budget planners in developing countries often have to discount aid pledges by as much as 40%.
