Book warns of looming crisis over public debt

Sunday October 14 2018

China is now Kenya’s largest bilateral creditor, accounting for 72 per cent of all foreign loans. FILE PHOTO | NMG

A rapid build-up of costly public debt in the past five years has put the Kenyan economy at the risk of turbulence, a new book warns.

It says although the government, some international and regional financial institutions maintain that the country’s external debt-to-GDP ratio is still below the applicable ceiling threshold and is sustainable, what is now considered manageable can deteriorate quickly to very high levels posing risks to development.

“The country’s debt-to-GDP ratio can easily deteriorate rapidly to over 85 per cent if the economy was to contract by a few percentage points and the currency depreciates by more than 10 per cent,” warns the book authored by a Kenyan scholar.

The nation’s total public debt stood at Sh5.04 trillion at the end of the last financial year in June, a growth of 14.3 per cent over Sh4.41 trillion a year earlier.

At 49 per cent of the gross domestic product (GDP) — national wealth — in net present value terms, the country’s debt was just shy of the 50 per cent mark stipulated under Public Finance Management Framework and below the 74 per cent threshold recommended by the IMF.

Treasury mandarins have often maintained that Kenya can bear its current debt load and early this year, they said they are engaging international investors that Kenya owes money to ensure looming debt obligations are managed effectively without exposing the country’s coffers to liquidity pressures.


But the book titled “Capital Flows, External Debt Accumulation and Financial Crises in Africa” by Godfrey Waweru blames what it sees as Kenya’s looming debt crisis on a series of costly projects commissioned by State for record-high repayments. Most of the resources from the debt, it claims, are never used in productive activities and are actually looted.

“The main problem and driver of the large budget deficits is not revenue shortfalls as many people have been arguing but rather the runaway and wasteful public expenditure at the national and county government levels that is exacerbated by the wanton looting of public funds in public procurement,” it says.

“The easily accessible and relatively cheap external debt is used to finance some infrastructure projects, increasing recurrent expenditure, imports, consumption and large current account deficits while a large part of the borrowed funds are also wasted and looted.” The book claims that the country’s public debts and liabilities are even higher than reported.

It cites Kenya’s dalliance with China, saying it could be saddling Kenya with huge loans for mega infrastructure projects that it says are mainly aimed at profiteering and promoting Chinese exports.