The long-term economic stability of the five East African Community member countries has become a matter of grave concern. The domestic and foreign debt of the countries has touched a whopping $100 billion. The rapid build-up of loans has pushed East African countries close to the brink of a debt crisis.
The countries with the highest loans in the EAC group are Kenya and Burundi with their debt to gross domestic product (GDP) ratios projected to cross 60 percent this year exceeding the tolerable limit of 50 percent advised by The International Monetary Fund. Rwanda’s debt-to-GDP ratio is expected to touch 49.1 percent from 40.7 percent, bringing it closer to the 50 percent threshold. The ballooning debt burden of EAC countries has evoked apprehensions over the capacity to meet the repayment obligations of the region. Political observers point out that, excessive debt may lead to capital flight at the expense of social services delivery.
In its latest Regional Economic Outlook report, IMF has urged the countries to enhance debt management frameworks and transparency. IMF and the World Bank have also cautioned them against the growing tendency of the countries to opt for commercial loans that charge high interest rates as opposed to concessional loans.
According to the African Development Bank, one major cause of the crisis is low domestic resource mobilisation. in East Africa, many countries have tax revenues below 15 percent of GDP finding it difficult to fund basic state functions. Low revenue collection levels have seen Kenya spend more than half of its tax income on debt repayment, cutting down development projects.
