Public Finance and Fiscal Sustainability in East Africa: Challenges, Strategies and the Road Ahead
A REPORT examining the fiscal backdrops, budgetary priorities, and policy responses of government budgets across East Africa.
Abstract
East African nations are navigating an increasingly complex fiscal landscape marked by rising debt burdens, currency volatility, and high global interest rates. This report provides a critical analysis of government budgets across the region, examining the fiscal backdrops, budgetary priorities, and policy responses with a focus on the Republics of Kenya, Tanzania and Uganda.
The region’s fiscal backdrop is characterised by persistent government deficits, high inflation, and depreciating local currencies, all of which have significantly increased the cost of external debt repayment. Governments are contending with compressed revenue streams and constrained access to affordable financing.
While infrastructure and social development remain top priorities, limited fiscal space and escalating debt service costs are forcing governments to make difficult trade-offs. In response, countries across the bloc are pursuing a range of strategies from debt reprofiling to asset sales and public-private partnerships to bridge funding gaps. This report highlights key refinancing and liquidity challenges, including the pressure of Eurobond maturities and the reliance on short-term domestic borrowing. It also explores the implications of prioritizing debt repayment over critical sectors such as healthcare and education.
Despite these headwinds, there are opportunities to stabilize and strengthen fiscal positions. Strategic recommendations include diversifying revenue sources, enhancing domestic resource mobilization, leveraging regional trade integration, and increasing transparency in asset transactions and PPP frameworks. These recommendations are based on case studies of various strategies employed across East Africa such as the leveraging of oil revenue in Uganda, asset sales in Kenya and domestic resource mobilisation in Tanzania.
By balancing development needs with prudent fiscal management and regional cooperation, East African countries can chart a sustainable path forward — even amid tightening global financial conditions.
Introduction
East Africa’s fiscal story is one of ambition under pressure. From Nairobi to Kampala to Dar es Salaam, governments are balancing the urgent need to invest in infrastructure, healthcare, and education with the stark reality of rising debt service costs and shrinking fiscal space. The economic promise of the region, home to some of Africa’s fastest-growing economies, now runs headlong into a more challenging global backdrop: high interest rates, volatile currencies, and tightening credit conditions.
The purpose of this report is to examine the government budgets and fiscal backdrops of the East African Community (EAC) member states, following the reading of their budgets for the 25/26 financial year in June. With a focus on Kenya, Tanzania and Uganda as the bloc’s largest and most influential economies, these states capacity to meet their development targets are assessed while the strategies they employ are navigated. We place particular emphasis on the interplay between macroeconomic pressures, budgetary priorities, and debt sustainability.
The need for such an analysis has never been greater. Global financing costs are at multi-year highs, while the depreciation of local currencies has increased the burden of dollar-denominated debt. This is particularly concerning in Kenya where nearly 50% of public debt is sourced from external creditors. Inflation, recently at double digits in Uganda, continues to erode household purchasing power and limit the room for new taxation. The fiscal deficits of several member states remain elevated, pushing debt-to-GDP ratios toward levels that strain investor confidence.
Drawing on government budget policy statements, IMF and World Bank data, as well as credible media sources, this report identifies both the common patterns and unique pressures shaping fiscal policy across the region. We explore the composition of revenues and expenditures, revealing how dependence on taxes, grants, and external borrowing shapes policy options. Our analysis goes beyond numbers to consider the trade-offs at stake. Infrastructure projects such as the Standard Gauge Railway (SGR) in all three countries are engines for long-term growth but they also carry heavy upfront costs. Social spending commitments, especially in healthcare and education, are essential for meeting Sustainable Development Goals (SDGs) but increasingly compete with ballooning interest payments.
To address these challenges, EAC governments are turning to a mix of short- and medium-term measures: debt restructuring, asset sales, domestic debt issuance, improved tax collection, and the pursuit of public-private partnerships. Regional integration and external partnerships, from multilateral lenders to emerging Gulf financiers, are also playing a growing role in shaping fiscal outcomes.
Ultimately, the report argues that the road ahead requires more than small fixes. Sustainable fiscal management will depend on diversifying revenue bases, strengthening governance, and striking a credible balance between borrowing for growth and borrowing for survival. The lessons from each respective country’s experience, explored through detailed case studies such as Kenya’s debt reprofiling efforts with the UAE, offer valuable insights for policymakers, investors, and development partners seeking to understand the EAC’s fiscal trajectory in a rapidly changing world.
Methodology
This report adopts a mixed methods approach to analyse the fiscal backdrop, budget compositions, and policy strategies of EAC member states, with a particular focus on Kenya, Tanzania, and Uganda. The methodology combines both qualitative and quantitative techniques to ensure a comprehensive, credible and contextual interpretation of government budgeting trends across the region. The primary data sources are the official 2025/2026 budget policy statements issued by the Ministries of Finance of Kenya, Tanzania and Uganda. These documents offer direct insight into each government’s fiscal priorities, revenue assumptions, expenditure plans and debt trajectories. Their policy setting authority and proximity to the source make them indispensable for capturing the intent behind fiscal decision making.
To situate these budgets within a broader economic context, multilateral data from the International Monetary Fund (IMF), World Bank and African Development Bank (AfDB) were used. These institutions offer consistency across regional comparisons, up to date macroeconomic indicators and externally validated forecasts. Their datasets allow for the benchmarking of fiscal performance against global and regional standards. In addition, sovereign credit rating reports by agencies such as Moody’s and S&P are incorporated to provide market-based assessments of debt sustainability. Credible regional media outlets supplement primary documents by offering real time reporting, expert commentary and political context. These sources are particularly useful in highlighting the informal dynamics of budget negotiation, implementation risks and public reception, issues often excluded from official statements.
The report’s analytical framework combines comparative fiscal analysis with thematic case studies. Comparative analysis leverages fiscal ratios such as debt to GDP, fiscal deficits, revenue to GDP and debt service as a share of government revenue to assess the pressure points in each country’s budget. This enables a side-by-side evaluation of the scale, structure and sustainability of public finances across Kenya, Tanzania and Uganda.
Thematic case studies are used to spotlight how each country is responding to fiscal stress. Kenya’s push for asset sales, Uganda’s oil backed borrowing and Tanzania’s intensified domestic tax mobilisation efforts are examined not just as isolated strategies but as reflections of broader policy orientations. These case studies were chosen for their economic significance, policy distinctiveness and relevance to the regional conversation on debt and development.
Quantitative analysis was performed through fiscal ratio comparison and trend extrapolation based on three-to-five-year budget and macroeconomic data. This helps track shifts in spending priorities, debt exposure and revenue generation capacity. Qualitative analysis, on the other hand, draws on narrative interpretation of policy documents and triangulated news reporting to evaluate intent, credibility and coherence of fiscal strategies. Although the aim is to offer a regional lens, this report focuses primarily on Kenya, Tanzania and Uganda because of their larger economic footprint, fiscal complexity and richer availability of data. The smaller or newer EAC members including Rwanda, Burundi, South Sudan and the Democratic Republic of Congo are referenced only when their experiences shed comparative insight or reinforce broader trends.
It is important to note that the analysis reflects planned fiscal allocations rather than realised execution. As a result, it captures declared priorities rather than confirmed outcomes. This limitation is particularly relevant when examining development spending or public private partnerships where disbursement delays and political interference can widen the gap between policy and practice. Ultimately, this methodology provides the foundation for a multidimensional understanding of East Africa’s public finance outlook. It enables a move beyond raw figures, revealing the trade-offs, pressures and possibilities that underpin each government’s budget strategy.
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