Reuters/Nairobi
Government spending across east Africa is set to balloon this year as Kenya and Uganda pursue expansionary, pro-growth budgets, putting continued pressure on domestic borrowing and forcing up already lofty bond yields.The largesse is also likely to erode support for the Kenyan and Uganda shillings, both of which have hit record lows against the dollar this year amid signs of a lukewarm commitment to tackling double-digit inflation.In his 2011/12 budget, Kenyan finance minister Uhuru Kenyatta outlined spending of $13.3bn, a 15% increase on last year’s budget that is likely to push the deficit out to 7.4% of GDP.By contrast, in his 2010/11 budget Kenyatta forecast a funding gap of 6.8% of output that still had analysts fretting about stimulating domestic inflation and putting pressure on local borrowing.Kenyatta forecast growth of 5.3% for the year for the region’s biggest economy.Sharply rising inflation has caused Kenyan bond yields to spike sharply higher over the last year, with 3-year bond yielding nearly 11.5% in the run-up to the budget.The double-digit interest rate has intensified concerns about how the government will finance its ambitions, but Kenyatta said he was not unduly worried about increased borrowing costs.“We do not expect short term interest rates to rise drastically, but care will be taken to ensure credit to support economic productivity,” he said in his budget address, delivered at the same time as other east African nations.In Kampala, the government unveiled similarly ambitious proposals amid a goal by long-term President Yoweri Museveni to turn Uganda into a middle-income country by 2015. Despite the recent discovery of oil, analysts dismiss the goal as unrealistic.Newly appointed finance minister Maria Kiwanuka Uganda said the economy would grow 7% in financial 2011/12, while inflation, which hit 16% in May, its highest level since 1994, would drop back to just 5% over the next 12 months.She said domestic revenues would finance 71% of the government’s spending plans, with “external financing” - basically foreign aid - accounting for the remaining 29%, the same proportion as last year.Tanzania, one of Africa’s top gold producers, is considering a “super profit” tax on earnings from minerals as one of the ways to fund its five-year development plan, according to documents seen by reporters. The move follows similar steps in other producer countries that have sought to increase fiscal revenue from the mining industry and to take advantage of rising prices.Australia was among the first to consider a hefty resource tax, but it had to climb down from initial proposals for a headline tax of 40% after pre-election talks with mining giants like BHP Billiton and Rio Tinto.“Revenue from the mineral resources will be one of the important sources of financing the medium-term plan. Considering the increasing trend in mineral prices, it is optimal to introduce a super profit tax on the windfall earnings from the mineral sector,” the plan, launched by President Jakaya Kikwete late on Tuesday, said.Worries over the tax helped drag down shares of miners operating in the region.