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East Africa records little progress to reduce inequality

Uganda scores poorly on all indicators – health, education and social protection

Kampala, Uganda | ISAAC KHISA | East African countries have recorded impressive economic growth in the past two decades but there has been little progress in reducing inequality in its population.

A new report by a global organisation Oxfam and Development Finance International (DFI) shows a widening gap between rich and the poor people, signaling worsening health and other outcomes for the population.

The study conducted in Uganda, South Sudan, Rwanda, DRC, Kenya, Tanzania, Burundi, Somalia and Ethiopia to analyse the impact of COVID-19 on growth, poverty and inequality, as well as the responses of

governments, their creditors and the IMF and World Bank, shows  that income is increasingly concentrating in the hands of a tiny few, even as a majority are struggling to meet their most basic needs, such as education, healthcare and decent jobs.

The study says the richest 10% receive an average of 47% of pre-tax national income across the region. For the richest 1%, their average share of income across the region is 15.7%, 2.5 percentage points more than the poorest 50% of citizens earn.

“In Rwanda, the richest 1% of the population earns 20% of national income, nearly double the share held by the bottom 50%,” the report states.

This comes as the COVID-19 pandemic is projected to sharply increase poverty and inequality, with the IMF, World Bank and UN already sounding an alarm.  The IMF has already issued Special Drawing Rights (SDRs) of $650bn to enable countries support spending or pay down domestic debt.

Estimates show that the bottom 40% of the world’s citizens have seen a 5% fall in their income compared to pre-pandemic projections. At the same time, global stock market booms saw billionaires’ wealth increase by $5.5tn between March.18, 2020 and July 31, 2021 as the world’s richest 20% were expected to have recovered any income and wealth losses sustained during the pandemic at the end of the very year.

E.A countries were unprepared for the crisis

Further, COVID-19 exposed how woefully unprepared East African governments were for a pandemic. The findings shows that East African countries  had limited access to essential health services, reaching fewer than 60% of the population in all countries;  an average of 7% of people spending catastrophic proportions (more than 10%) of their income on healthcare;  limited commitment to spending on healthcare, with under 10% of government budgets dedicated to health in all countries except Ethiopia, Burundi and DRC; and extremely low access to social protection benefits (using pension coverage as a proxy), with only 10.5% coverage on average, and under 10% in six countries.

The study also showed that  countries in the region had very low social protection spending of only 7% of budgets (only 40% of the global average); and that an average of only 20% of workers were on formal contracts (34% less than the global average) and thus having the right to sick pay, job protection among others.

“In short, when COVID-19 hit, half of East Africa’s citizens had inadequate access to healthcare, 90% lacked social protection and 80% lacked labour rights to cope with the pandemic,” notes the study.

Though the nature of responses to COVID-19 pandemic varied between countries, only Rwanda has included plans to invest more in health systems and preparedness beyond 2021 until 2024. Somalia, meanwhile, has increased its health spending tenfold between 2009 and 2021, to 5% of total federal spending.

“All countries have also increased social protection spending, but some increases (e.g. in DRC,

South Sudan and Tanzania) have been very limited,” the report states. “In contrast to other African regions, most spending has been on health and social protection responses rather than the broader economy.”

Many governments are also having to use an increasing share of their budget to service growing debts, rather than investing in their populations, a trend that the governments have embraced for many years. This is because even before COVID-19, debt servicing was at astronomical levels in many East African countries.

On average in 2019, East African countries were spending five times as much on domestic and external debt servicing as on health, with South Sudan spending 28 times as much. Only Burundi, DRC and Somalia spent more on health than debt servicing.

And, with the  debt-to-GDP averaging  54.5%, and debt service revenue 35.2% by 2020–21, the highest debt service costs are for  Uganda, South Sudan, Kenya and Rwanda, which are spending around or over half their revenue. Only in Somalia, DRC and Burundi is debt absorbing less than 25% of revenues.

How countries fair in reducing inequality, education, health….

Kenya comes top on public services in East Africa, but only 13th in Africa and 110th out of 158 countries globally. This, according to the study, is because it spends almost 20% of its budget on education, resulting in 12% of the poorest children finishing secondary school.

Nevertheless, its performance on health and social protection is much weaker, so its public services reduce inequality by only 12%.

On the other hand, Uganda ranked 37th in Africa and 144th out of 158 countries worldwide beating only South Sudan in the region.

South Sudan ranks bottom in East Africa and globally on public services with the study arguing that as a country emerging from conflict, it is spending only 11.7% of its budget on education, health and social protection combined.

These services are not reaching the poorest people: only 1% of the poorest children finish secondary school, and just 31% of citizens have access to healthcare. As a result, public services are estimated to reduce inequality by only 0.6%.

In the education sector, only Ethiopia is meeting the internationally recommended 20% of national budgets on education spending, as set by the Education for All partnership. The education share is said to be the second-highest in the world. Kenya, DRC and Burundi are not far from meeting the target, but South Sudan and Somalia are under 10%.

Heath sector, too, face a similar challenge as spending on health in East Africa is only half the Abuja African Union commitment of 15% of budgets. Only three countries, with Burundi, DRC and Ethiopia spending over 10% of their budget to health.

Uganda, Kenya and Rwanda spends 9.7%, 9.2% and 9.0% respectively, of their national budgets to health.  Somalia and South Sudan spend just 2%.

“All East African countries are falling well short of the Sustainable Development Goals of 100% universal health coverage, with six not having reached 50% coverage when the COVID-19 pandemic hit,” the report notes adding that Uganda and DRC also have extremely high levels of ‘catastrophic out-of-pocket’ (COOP) health spending, defined as households spending more than 10% of their income on healthcare.

The picture isn’t ant better with the social protection. The pre-pandemic social protection spending averaged only 7.2% of national budgets in East Africa and fell below 10% in all countries except Tanzania. Kenya saw its social protection spending fall below 5% of the population.

To make the situation even worse, all countries in the region reach fewer than 25% of their population with pension. In Uganda, Tanzania, Burundi and Rwanda, the pension coverage rate is below 10% in spite of the fact that Sustainable Development Goals roots for 100% social protection coverage.

Outlook for future spending

Quoting IMF projections for the nine East African countries in 2022–26, the study shows that they plan to reduce annual public spending by 4.7% of GDP on average compared with 2021 yet not implementing these cuts would be enough for five governments to quadruple health spending and keep it at that level until 2026. These cuts could stop them combating the increases in poverty and inequality that have resulted from COVID-19.

South Sudan, where there were more generals than doctors before COVID-19, could multiply its health spending by 13 times. The study notes that in all countries, the planned cuts exceed annual health budgets; they are twice as high in Uganda, four times in Burundi, and 34 times in South Sudan.

The austerity is being encouraged in IMF policy assessments, loans and advice on reducing overall spending immediately after the pandemic in order to achieve smaller deficits and reduce debt levels, rather than sharply increasing spending on health, education, social protection and food security to fight inequality.

Commenting on the new study, Nivatiti Nandujja the coordinator for the women rights program at Oxfam Uganda said Uganda is in dire need for major reforms to reverse the trend.

“We have extremely low access to social protection benefits using pension coverage as a proxy,” she said. “Only 6.6% of elderly Ugandans had pension coverage compared to the 24.8% coverage in Kenya whereas 84% of the labour force was in informal employment, thus not covered by existing labour rights, the third worst rate in the region.”

Mitchel Ainebyona, a policy analyst at CSBAB said the government need to scale up investment in health, education and social protection to protect the vulnerable ad enhance resilience to the future shocks.

“The government should increase health budget to at least 15% of the total government expenditure to reduce high out of pocket healthcare costs,” he said, adding that the education budget should also be increase to at least 20% as social protection aspect is scaled up.

Jane Nalunga, the executive director at the SEATIN Uganda noted that it time for government to make tax regime progressive to reduce over-reliance overreliance on regressive taxes such as VAT.

“Capital income such as dividends, capital gains and property tax income should be taxed more than labour income,” she said, adding that the government should at the same time use the current Special Drawing Rights issuance and concessional external loans to pay down its domestic debt and free up fiscal space.

Meanwhile, Susan Achen, coordinator, Women’s Right Access to Justice at Uwonet said the government should create decent jobs, reduce wage gap and raise the minimum wage.

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