KAMPALA, UGANDA — Growth in the East African Community (EAC) member states should rise further in the next two years, to about 7% this year and next year.
This is a prediction that has been made by the deputy managing director of the International Monetary Fund (IMF), Mr. Tokatoshi Kato who was on visit to Uganda early last week.
“Growth in the EAC should rise even further, to about 7% in 2007 and 2008,” Kato said in a statement he released to the media upon his arrival.
He however was quick to add that there are risks to the positive outlook, including that of an unanticipated strong slowdown of the global economy, or of lower access to financing due to the ongoing re-pricing of risk in global financial markets.
Aid flows could also fall short of expectation he said, given that so far the promised scaling-up of aid from international donors has not fully materialised.
GDP growth targets for Kenya, Uganda and Tanzania for 2007 are pegged at around 7%. New EAC members Rwanda and Burundi are also not so far off from attaining those growth figures.
Last year, Uganda attained growth rates of 6.5% up from 5.1% a year before that. On the other hand, Kenya achieved growth rates of 6.5 and expects that to rise to 7% while Tanzania attained 5.9% in 2006 and expects a 7.3% growth this year.
Kato said despite the risks associated with shortfalls in aid flows and the slow down in the global economy, the current expansion in growth in sub-Sahara Africa offers a unique opportunity for development.
The challenge he said is to sustain and broaden the growth momentum, building on a virtuous cycle of reform, stabilisation, and growth that seems to be emerging in the sub-Sahara Africa region.
A dynamic private sector is key to raising and sustaining growth, reducing poverty and integrating the region into the global economy with the help of a public sector to establish a good environment for the private sector.
Kato said: “Achieving this will require maintaining economic stability, investing in infrastructure, strengthening the financial sector and public institutions, and liberalizing business regulations.
“Developing human capital, alongside infrastructure, is important too. Stronger efforts to improve health and education are critical to this objective.”
To address the pressing development needs, Kato called for strengthening of a public financial management and governance. He said strengthening public financial management and governance not only helps to make the most out of limited resources, it also helps unlock aid and attract investors.
However, experience shows that higher aid and spending create new challenges, both to preserving economic stability and to external competitiveness.
Kato said since foreign financing alone may not raise investment to the level needed to achieve development goals, countries must also put more emphasis on developing the local financial sector.
“This would help boost domestic savings and increase the private sector’s access to financing,” Kato explained.
He said that as a grouping, economic growth within the EAC has kept pace with broader sub-Saharan African growth since 2002, and has even exceeded it in the past two years.
“This is especially noteworthy, considering that growth in the EAC countries has been propelled not so much by foreign demand as by improved economic policies and reforms,” the statement reads in part.
He said the IMF expects growth in sub-Saharan African to accelerate to well over 6% in 2007 and 2008. While oil-exporting countries will drive much of this acceleration, non-oil producing low-income countries will also contribute.
Sub-Sahara Africa as a region, he said is experiencing its best economic performance in 30 years. Many countries continue to excel as they record historically high economic growth rates and impressive economic stability.
