Trade and investment are essential for economic growth in East Africa. We examine the latest trends in trade and investment in the region and discuss the policies that can beimplemented to attract more foreign direct investment.

The effects of the Ukraine conflict precipitated global inflation and as a result, currency depreciations world over. East Africa, on account of its net importer status, was particularly vulnerable to imported inflation. This resulted in increased input costs, a high cost of living and subsequently, declining consumer demand.

Central banks in East Africa have faced a difficult balancing act, with the need to tighten monetary policy to combat inflation while not stifling economic growth. The United States Federal Reserve rate, which currently sits at a 22-year high, has resulted in capital flight from emerging markets as investors look to derisk in search for lucrative and nearly inflation-free investments. This resulted in a decline in foreign investments in East Africa and consequently, a general economic slowdown.

The COVID-19 pandemic has led to a significant increase inpublic debt levels in East African countries, with the recent funding squeeze on account of high interestrates, elevated sovereign debt spreads and currency depreciation further raising the cost of debt. The publication assesses the fiscal policy challenges facing the region and discusses the options for ensuring debt sustainability.