Public Debt Management Strategy Formulation In East Africa: A Review Of Kenya, Uganda And Tanzania Frameworks

By Cappitus J.O. Chironga
April 2011

Public debt management has become a key area of study following the recent historical global financial and economic crises induced by unsustainable debt. This paper evaluated debt management practices and debt management strategy formulation in the East African region, with focus on Kenya, Tanzania and Uganda. In particular, it sought to establish; (1) whether public debt management strategies exist in the EAC region, (2) whether they are made public and in which form, and (3) if debt management practices in the region meet international best practice as defined by the IMF/World Bank and other countries like New Zealand, Australia and Canada.

Using non-parametric qualitative methodology, survey results from the three countries show that debt management practices bear many similarities as there are differences within EAC. However, debt management strategies formulations differ significantly across the region: Tanzanian strategy has never been reviewed in the last ten years since formulation in 2002; and Uganda’s Strategy on the other hand, is close to five years before any review was done. This raises questions on whether these countries are committed to implementing the debt management strategies they formulated. There are also weaknesses in institutional arrangement, scope of strategic objectives and mechanisms for monitoring as well as definition of contingent liabilities. Lack of independent and well-staffed debt management offices as well as absence of fiscal agency agreements between the principal and fiscal agent undermine efforts to achieve effective debt management. None of the frameworks has provisions for regional integration convergence criteria despite the advanced stages of economic integration. Given the variation in the debt management strategies across the region, one may ask for harmonization purposes, which of the three frameworks; Medium Term Debt Management Strategy for Kenya, Integrated Debt Management Strategy for Uganda and National Debt Strategy – Domestic and Total for Tanzania, is actually considered superior and thus suitable for EAC region?

Overall, regardless of strategy framework adopted, the EAC countries should take immediate steps towards not only reviewing their debt management strategies and practices to reflect currency and international best practice, but should harmonize them to capture regional integration efforts. The 2010 debt crisis in Euro area shows that EAC can actually be destabilized completely if one member state defaults in debt service to a level of collapsing the entire financial system. While the European Central Bank was able to bail out countries like Iceland, Republic of Ireland and Greece, the EAC region is unlikely to have adequate financial resources to bail out a country like Kenya in the event of debt crisis.

Key Words: Public Debt Management, Debt Management Strategies, Debt Sustainability, Risk management, International best practice