Five East African countries face US Debt trap

A rapid build-up of loans has pushed East African countries close to a debt crisis, putting at risk the region's long-term economic stability.
Five East African Community member countries have together amassed more than $100 billion domestic and foreign debt, stretching their repayment budgets to the limit.
Kenya and Burundi have the highest loan distress profiles relative to their EAC peers, with their debt to gross domestic product (GDP) ratios projected to exceed 60 per cent this year.
The International Monetary Fund considers a debt to GDP ratio of 50 per cent to be within the tolerable limit for developing economies such as the EAC members.
"With several countries facing increased foreign exchange and refinancing risks, it is critical to enhance debt management frameworks and transparency," warned the IMF in its latest Regional Economic Outlook report released a week ago.
Kenya's debt-to-GDP ratio is on course to hit 61.6 per cent at the end of this year from 60.1 per cent last year, while Burundi's ratio is expected to climb to a high of 63.5 per cent from 58.4 per in 2018.
Rwanda's debt-to-GDP ratio is expected to touch 49.1 per cent from 40.7 per cent, taking Kigali closer to the 50 per cent threshold.
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The debt-to-GDP ratios for Uganda and Tanzania will increase to 43.6 per cent and 37.7 per cent from 41.4 per cent and 37.3 per cent respectively.
The surging debt loads of EAC countries have stoked fears over future capacity to meet repayment obligations, with indications that the region is headed into a debt overhang prompted by increased appetite for quick and expensive loans.
Kenya's Parliament this past week passed a vote increasing the public debt ceiling to Ksh9 trillion ($87 billion), which the Treasury said was necessary to give room for more borrowing to retire current, expensive debts.
With the region's appetite for debt showing no signs of abating, the IMF and the World Bank have cautioned against the increased tendency to go for commercial loans that charge high interest rates as opposed to concessional loans.
It is also feared that the ballooning public debt will destroy the region's economic credibility, making it difficult for member countries to access more loans for investments.
"If invested wisely, debt is likely to improve the well-being of citizens. What we are experiencing in the region is, however, not the case. Excessive debt in infrastructure, mostly transport, is not translating into improved well-being," said Dr Scholastica Odhiambo, a senior lecturer at Kenya's Maseno University's School of Business.
"The amount the EA countries are paying to redeem the debts will result in capital flight at the expense of social services delivery. The debts are choking us, we might mortgage our countries in the near future."

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