Debt or development? East Africa’s future in the IMF’s April economic outlook

EAST AFRICA: Tanzania, Kenya, Rwanda, Burundi, South Sudan and the Democratic Republic of Congo (DRC) stand today at a pivotal moment in their economic journey.

Drawing from the International Monetary Fund’s World Economic Outlook Statistical Appendix (April 2025), this review examines where progress is taking root, where vulnerabilities are deepening and what pathways could secure the bloc’s ambition for sustainable growth.

Across the region, public finance systems remain heavily anchored in cash-based accounting.

In Tanzania, Kenya, Uganda, South Sudan and the DRC, government revenues and expenditures are recorded only when actual cash flows occur. Tanzania, for instance, is projected to grow by a promising 5.4 per cent in 2025, yet its fiscal reporting continues to rely largely on cash transactions, limiting the government’s ability to track future liabilities such as pensions and pending supplier payments.

Rwanda, by contrast, has begun incorporating a hybrid system, combining cash and partial accrual accounting. This shift is more than a technical upgrade—it is a strategic necessity.

As the East African Community (EAC) embarks on infrastructure projects collectively valued at over 100 billion US dollars over the next decade, accurate accounting for financial commitments will be essential for maintaining fiscal discipline and attracting investor confidence.

The region’s external financial position paints a unified but troubling picture. Every EAC country is classified as a net debtor by the IMF, meaning their external liabilities exceed their foreign assets. Kenya faces a current account deficit projected at 5.1 per cent of GDP in 2025, reflecting its reliance on external borrowing to finance infrastructure and budget shortfalls. Tanzania, with a smaller but notable deficit of 3.2 per cent of GDP, is similarly exposed.

Meanwhile, South Sudan and the DRC, heavily dependent on volatile commodity exports and foreign aid, face some of the highest external vulnerabilities in the bloc. With global interest rates projected to average 4.2 per cent in the United States this year, the cost of servicing external debt could surge, tightening fiscal space across the region and limiting room for policy manoeuvring.

On the development ladder, East Africa’s climb is emerging—but uneven. Kenya leads as the only country in the bloc recognised as a middle-income economy, with a projected per capita GDP of 2,250 US dollars in 2025.

Rwanda follows closely, with a projected per capita GDP of 1,260 US dollars, propelled by robust growth in sectors like construction and financial services.

Tanzania and Uganda also maintain respectable momentum, with projected GDP growth rates of 5.4 per cent and 5.9 per cent respectively, yet they remain within the low-income bracket, each with per capita incomes under 1,200 US dollars. In contrast, Burundi, South Sudan and the DRC continue to struggle, with per capita incomes barely exceeding 600 US dollars and poverty rates stubbornly above 60 per cent. These widening disparities are a stark reminder that while the bloc shares many aspirations, its policy priorities must be carefully calibrated to national circumstances.

Debt sustainability offers a mixed picture of progress and renewed risk. Tanzania, Uganda, Rwanda, Burundi and the DRC successfully completed the Highly Indebted Poor Countries (HIPC) Initiative, receiving substantial debt relief between 2000 and 2005.

Tanzania’s external debtto-GDP ratio, which once exceeded 100 per cent in the late 1990s, has since fallen to about 39 per cent. Rwanda has managed an even stronger position, maintaining external debt levels at around 35 per cent of GDP. Yet the post-HIPC era has seen borrowing creep upward again. Kenya’s public debt stock surpassed 70 per cent of GDP in 2024, raising concerns about sustainability, particularly given the growing share of expensive, nonconcessional debt.

Across the region, the hard-won fiscal space from past debt relief is increasingly under pressure, highlighting the importance of disciplined borrowing strategies.

Structurally, the region remains early in its economic transformation. Agriculture still dominates employment, accounting for more than 60 per cent of jobs in Tanzania, Uganda and Burundi. Manufacturing remains marginal, contributing less than 10 per cent of GDP across most EAC economies—Kenya being the exception, where it sits around 11 per cent.

However, services are beginning to shine, particularly in Rwanda and Kenya, where fintech, tourism and logistics sectors have achieved doubledigit growth in recent years.

Major infrastructure projects, including the Standard Gauge Railway extensions, the East African Crude Oil Pipeline (EACOP) and regional power interconnectors, offer transformational potential. But they also bring substantial financing needs and operational risks.

According to the World Bank, meeting East Africa’s infrastructure requirements sustainably would demand annual investments equivalent to about 5 per cent of GDP— funds that will significantly stretch already constrained public finances.

East Africa today finds itself at a historic crossroads, framed by both opportunity and urgency. Cash-based fiscal systems, once adequate for simpler economies, now risk becoming bottlenecks in an increasingly complex and interconnected financial environment.

The bloc’s shared status as net debtors demands a sharper focus on external vulnerability management and debt transparency. Income gaps within the region are widening and unless urgent measures are taken, the aspiration to collectively rise into middle-income status could fracture.

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Past debt forgiveness provided a much-needed second chance. The future, however, will depend on choices made today. Transitioning toward accrual-based accounting, establishing a regional sovereign debt monitoring platform, mobilising domestic revenues more effectively and driving green industrialisation could transform East Africa from a region of promise to a true engine of global growth.

Managed with vision, discipline and innovation, East Africa could redefine its economic narrative by 2035. The decade ahead will be decisive—and the clock has already started ticking.

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