A bigger role for diaspora cash in East Africa’s slowing economies

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East African economies are facing weaker growth prospects because of the global crisis stemming from the military conflict in the Middle East.

But they could soften the blow by adopting policies that attract more diaspora remittances, experts say.

A new report by the African Development Bank (AfDB) says the region will pay a price as a net importer, especially of fuel products sourced mainly from the Gulf.

The latest edition of the African Economic Outlook, launched on Tuesday on the sidelines of the AfDB Annual Meetings in Brazzaville, Congo, blames a spike in global oil and gas prices for stoking inflationary pressures across Africa, hitting hardest countries with low agricultural productivity, conflict and limited natural resources.

This year’s theme is Mobilising Africa’s Development Financing at Scale in a Fragmented World.

Inflation squeezeThe report projects inflation at 10.4 percent across the continent in 2026 – a 0.9 percentage point increase from the January 2026 forecast – before easing to 8.9 percent in 2027.

Although average inflation in 2026 will remain elevated, the projected rate marks a substantial decline from 13.7 percent in 2025, attributed to increased agricultural output and the effects of tighter monetary policy in previous months.

Inflation is projected to remain below five percent in 26 countries, which could avoid or withstand shocks from the Gulf conflict.

Overall, the currencies of 27 African countries depreciated against the dollar relative to the February 27 baseline, a day before the US and Israel launched war on Iran.

Countries need hard currency to pay for imports. Those with natural resources, such as South Sudan, still face high inflation because they import nearly everything.

Juba’s real GDP growth, for example, could reach 22 percent. But inflation is likely to top 21.8 percent before easing to 16 percent in 2027.

The situation is similar in Burundi, which faces inflationary pressure of up to 22.1 percent this year. Conditions could worsen given its existing negative fiscal balance.

Mixed fortunesRwanda and Uganda are projected to sustain strong growth above six percent, although both have sizeable current account deficits.

Tanzania and Kenya have posted steady, albeit modest, growth and kept inflation below five percent. But Kenya faces fiscal risks, with spending exceeding budget targets by more than six percent.

Somalia, despite its security challenges, could post modest growth and a relatively stable fiscal outcome. Mogadishu has a current account deficit nearing 10 percent, but low inflation and a comparatively stronger fiscal position than its East African Community peers.

Despite the bleak outlook, East African countries could improve their position through urgent policy shifts targeting diaspora capital and the informal sector.

The AfDB says African countries should integrate diaspora capital mobilisation into national development financing strategies.“For countries with high potential to mobilise capital from the diaspora, national diaspora financial markets and investment funds with clear regulatory frameworks to ensure regular issuance, investor protection and capital transferability are key to increasing remittances,” it says.“Countries with high remittances should increasingly shift a share of the funds received from family support into investment. Financial institutions could design products that allow auto-channelling of a share of remittances into savings and investments through opt-out partial allocation.”Diaspora dollarsEast African countries received more than $17 billion in remittances from their diaspora in 2024.

Ethiopia received the most at $6 billion, followed by Kenya ($4.94 billion), Somalia ($2.4 billion) and the Democratic Republic of Congo ($2 billion). Uganda ($1.42 billion), Tanzania ($810 million) and Rwanda ($502 million) also received significant sums, according to local central bank reports. Data for South Sudan and Burundi was unavailable.

“In the medium term, priority should be given to structuring remittances through specialised investment funds, diaspora bonds and public-diaspora co-financing mechanisms, supported by targeted tax incentives and partial guarantees to deepen trust and participation.“In the long term, it should build a diaspora financial ecosystem that allows capital transferability and integration of diaspora instruments into national development strategies.”

Overall, some countries were praised for targeting the informal sector. Kenya, Uganda and Zambia’s micro-pension programmes and reforms aimed at including informal workers could encourage other countries to expand insurance coverage and institutional funding pools while reducing workers’ exposure to risk.

Yet the continent must still tackle corruption and revenue leakages, strengthen capital market regulations and disclosure standards, standardise public-private partnerships, and improve legal and procurement frameworks to attract private capital and institutional investors.

It must also deepen market liquidity by increasing tradable instruments, developing secondary markets and broadening the institutional investor base.