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• EAST AFRICAN COMMUNITY

Europe's war prompt new warnings of economic headwinds

Higher import costs and tighter export markets hit earnings prospects in the region's key economies

The combination of increased risk of debt distress, budget deficits and limited economic diversification have prompted the African Development Bank (AfDB) to become the latest international financial institution to drop its forecast for economies in East Africa, cutting its estimates for the region's GDP growth to 4% this year, before recovering to 4.7% in 2023.

As had been set out in by the group of East African finance ministers publishing their annual budget statements in June, Rwanda and Kenya are expected to be the two strongest performers (AC Vol 63 No 13, Spiralling prices dominate budgets). Russia's war in Ukraine has pushed prices of fuel and farm inputs such as fertiliser to the region. Inflation rates vary wildly from 4.4% in Tanzania to 37% in Ethiopia, compared to an average of around 12% across the African continent.

There is little room to manoeuvre for treasury departments. The International Monetary Fund continues to push governments in the region to scrap fuel subsidies for firms and consumers. In Kenya, President William Ruto has watered down his election campaign plans to offer concessional loans to small businesses and announced plans to sell off shares in parastatals in order to raise funds (AC Vol 63 No 21, The hustler backs austerity).

East Africa's economies would be badly hit should the global economy tip into recession. This month, the UN Conference on Trade and Development (UNCTAD) warned that a recession would hurt exports of agriculture and horticultural products, inflicting worse damage than the 2020 Covid pandemic.

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