Finance ministers in Kenya, Uganda and Tanzania will present their 2026/27 budgets to their parliaments on Thursday, with investors focused on how they will shield their economies from cost shocks linked to the Iran war while keeping debt in check.

East Africa is seen as highly vulnerable to the trade turmoil arising from conflict given its reliance on fuel and fertiliser imports - concerns which prompted the African Development Bank to cut the region's growth forecast for this year by half a percentage point.

"Investors will be looking for fiscal tightening out of Kenya and Uganda, and focusing particularly on whether the revenue and expenditure growth targets are realistic," Charlie Robertson, head of macro strategy at FIM Partners, said.

Financial years in East Africa run from July to June. Governments in Ethiopia and Rwanda were also scheduled to present their budgets on Thursday.

MARKETS EYEING 'CREDIBLE FISCAL PATH' FOR KENYA

In Kenya, the biggest economy in the region, markets will be watching to see how Finance Minister John Mbadi balances high debt repayments, slowing growth, a temporary cut in petroleum taxes and a wide fiscal deficit.

The country has been rocked by deadly protests against high fuel prices.

"Treasury has consistently underperformed budget targets in recent years and the fiscal balance has remained in a primary deficit, insufficient to stabilise public debt and restore market confidence," Andrew Matheny, senior economist at Goldman Sachs, said.

"Markets will look for evidence of a more credible fiscal path forward, consisting of either spending cuts or genuine revenue measures that narrow the deficit," he added.

Kenya's finance ministry projected earlier this month a budget deficit of 5.4% of GDP in the fiscal year starting next month, slightly narrower than an estimated deficit of 6.4% this financial year. 

President William Ruto, who faces elections next year, has pushed to boost revenue through tougher tax enforcement, though government agencies complain of delayed funding and households say higher taxes have squeezed incomes.

FUEL PRICE SHOCK SEEN WEIGHING ON UGANDA'S PLANS

In neighbouring Uganda, analysts cautioned that the Iran war shock on fuel prices could strain government spending plans.

"We should not assume a back-to-normal trend, so it's important that we have a shock mitigation measure," Enock Nyorekwa Twinoburyo, an economics lecturer at Makerere University, said. Demand for dollars has put pressure on the local currency, exacerbating the challenges, he added.

In Tanzania, which said it expected the economy to grow at a faster rate of 6.3% this year from 5.9% last year, the government said the Iran war could present opportunities.

"There is an opportunity to provide the services for transhipment of ships that have not been able to deliver parcels to the ports in the Middle East," Planning Minister Kitila Mkumbo told parliament ahead of the budget.

"This war give us an opportunity for our country to attract investors who now see the Gulf region as no longer safe for their investment," he added, citing areas like gas production.