A Moody’s report titled: ‘East Africa: Institutional weakness and limited policy effectiveness constrain ability to manage higher debt burdens’ indicates that the growing debt burdens for East African countries are putting pressure on their financial strength and credit quality.
The countries, Kenya, Uganda, Tanzania, and Rwanda are at risk of their economies being exposed “to exchange rate troubles, deteriorating affordability and increasing reliance on non-concessional financing.”
“Such countries will be increasingly tested in coming years,” the report stated.
Moody’s, however, notes that the debt-to-GDP ratios for the four countries remains fairly stable with Uganda’s debt expected to increase by six per cent of GDP to 44 per cent in 2019. In the four countries, government debt surged by 13 to 21 per cent of GDP between 2012 and 2017.
East Africa’s Debt Situation
The report indicates that Kenya holds the highest government debt in the region due to infrastructure spending, the increasing cost of debt, and low revenue collection. Moody’s predicts that the debt will approach 60 per cent of GDP in the coming two years. Currently, Kenya’s public debt stands at 58 per cent of GDP.
On the other hand, Rwanda has the lowest government debt but has the highest rate of accumulating debt which signals “a transition in donor support from concessional loans and grants.”
The report also indicates that Tanzania, Uganda, and Rwanda are experiencing a rising and significant share of foreign and external-currency denominated debt which exposes them to exchange rate depreciation risk.
“Increasing debt burdens and deteriorating debt affordability, even when linked with public investment aimed at enhancing growth, and generating foreign exchange to service outstanding debt, constrain fiscal space and weigh on our overall assessment of credit quality in Kenya, Rwanda, Tanzania, and Uganda,” Moody’s assistant vice president, analyst and co-author of the report David Rogovic said.
“Their ability to contain any further rise in debt burdens for the foreseeable future and direct limited domestic resources toward productive uses will be important credit considerations in all four countries,” he added.
In Rwanda and Tanzania, debt remains highly affordable due to a large share in concessional debt while in Kenya the high dependency rate on commercial borrowing has made debt affordability worse.
In Uganda, the shift to domestic borrowing costs and non-concessional external borrowing is deteriorating the country’s debt status.
The Strength of Policy and Institutional Frameworks in Managing Debt
Moody’s observes that limited policy effectiveness and the weakness of institutions will affect the ability of Tanzania, Uganda, and Kenya in managing high debt levels and credit levels. However, the policies and institutions of Rwanda are strong enough to manage the risk that comes with high debt.
World Bank pushes G-20 to extend debt relief to 2021
World Bank Group President David Malpass has urged the Group of 20 rich countries to extend the time frame of the Debt Service Suspension Initiative(DSSI) through the end of 2021, calling it one of the key factors in strengthening global recovery.
“I urge you to extend the time frame of the DSSI through the end of 2021 and commit to giving the initiative as broad a scope as possible,” said Malpass.
He made these remarks at last week’s virtual G20 Finance Ministers and Central Bank Governors Meeting.
The World Bank Chief said the COVID-19 pandemic has triggered the deepest global recession in decades and what may turn out to be one of the most unequal in terms of impact.
People in developing countries are particularly hard hit by capital outflows, declines in remittances, the collapse of informal labor markets, and social safety nets that are much less robust than in the advanced economies.
For the poorest countries, poverty is rising rapidly, median incomes are falling and growth is deeply negative.
Debt burdens, already unsustainable for many countries, are rising to crisis levels.
“The situation in developing countries is increasingly desperate. Time is short. We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency,” said Malpass.
Kenya’s Central Bank Drafts New Laws to Regulate Non-Bank Digital Loans
The Central Bank of Kenya (CBK) will regulate interest rates charged on mobile loans by digital lending platforms if amendments on the Central bank of Kenya Act pass to law. The amendments will require digital lenders to seek approval from CBK before launching new products or changing interest rates on loans among other charges, just like commercial banks.
“The principal objective of this bill is to amend the Central bank of Kenya Act to regulate the conduct of providers of digital financial products and services,” reads a notice on the bill. “CBK will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.”
According to Business Daily, the legislation will also enable the Central Bank to monitor non-performing loans, capping the limit at not twice the amount of the defaulted loan while protecting consumers from predatory lending by digital loan platforms.
Tighter Reins on Platforms for Mobile Loans
The legislation will boost efforts to protect customers, building upon a previous gazette notice that blocked lenders from blacklisting non-performing loans below Ksh 1000. The CBK also withdrew submissions of unregulated mobile loan platforms into Credit Reference Bureau. The withdrawal came after complaints of misuse over data in the Credit Information Sharing (CIS) System available for lenders.
Last year, Kenya had over 49 platforms providing mobile loans, taking advantage of regulation gaps to charge obscene rates as high as 150% a year. While most platforms allow borrowers to prepay within a month, creditors still pay the full amount plus interest.
Amendments in the CBK Act will help shield consumers from high-interest rates as well as offer transparency on terms of digital loans.
Scope Markets Kenya customers to have instant access to global financial markets
NAIROBI, Kenya, Jul 20 – Clients trading through the Scope Markets Kenya trading platform will get instant access to global financial markets and wider investment options.
This follows the launch of a new Scope Markets app, available on both the Google PlayStore and IOS Apple Store.
The Scope Markets app offers clients over 500 investment opportunities across global financial markets.
The Scope Markets app has a brand new user interface that is very user friendly, following feedback from customers.
The application offers real-time quotes; newsfeeds; research facilities, and a chat feature which enables a customer to make direct contact with the Customer Service Team during trading days (Monday to Friday).
The platform also offers an enhanced client interface including catering for those who trade at night.
The client will get instant access to several asset classes in the global financial markets including; Single Stocks CFDs (US, UK, EU) such as Facebook, Amazon, Apple, Netflix and Google, BP, Carrefour; Indices (Nasdaq, FTSE UK), Metals (Gold, Silver); Currencies (60+ Pairs), Commodities (Oil, Natural Gas).
The launch is part of Scope Markets Kenya strategy of enriching the customer experience while offering clients access to global trading opportunities.
Scope Markets Kenya CEO, Kevin Ng’ang’a observed, “the Sope Markets app is very easy to use especially when executing trades. Customers are at the heart of everything we do. We designed the Scope Markets app with the customer experience in mind as we seek to respond to feedback from our customers.”
He added that enhancing the client experience builds upon the robust trading platform, Meta Trader 5, unveiled in 2019, enabling Scope Markets Kenya to broaden the asset classes available on the trading platform.