Untamed borrowing to hurt Kenya's debt payment plan

Thursday April 25 2019

LOANS

Institute of Economic Affairs Chief Executive Officer Kwame Owino addresses guests during the launch of Kenya Urban Areas Performance Index 2017 report at Stanley Hotel on September 5, 2018. The firm has advised the government to contain its appetite for borrowing. PHOTO | FILE | NATION MEDIA GROUP 

PETER MBURU
By PETER MBURU
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Kenya risks defaulting on its debt obligations in a decade if the current appetite for borrowing remains unchecked, a think tank has warned.

Worrying details on the country’s debt have emerged a day after President Uhuru Kenyatta and ODM leader Raila Odinga left the country for China to secure a fresh Sh368 billion loan for expansion of the standard gauge railway (SGR) to Kisumu.

A survey by the Institute of Economic Affairs (IEA) revealed that if the country’s appetite for borrowing continues, it risks defaulting on repayment in 10 years.

The IEA showed a trend where the government has been using more than two thirds of its revenue to cater for recurrent expenditure since 2013, while the amount used to service debts increases every year.

Of the money used to cater for recurrent expenditure by the national government in the financial year 2013/14, 44 per cent was used to service debts.

CHINESE LOANS

In 2018/19 that amount rose to 58 per cent, as money used to pay wages shrank by seven per cent.

By last year, the government was using over Sh870 billion of its budget to pay debts, up from Sh649 billion in the financial year 2017/18 and Sh417 billion in 2016/17.

The amount has been rising since 2013, when it stood at Sh331 billion. In total, the government spent Sh962.56 billion of its budget on mandatory payments, the money drawn from the consolidated fund.

Experts from IEA also noted that Kenya has been borrowing from China, whose loan terms are harsh and which does not do due diligence studies before issuing loans, as opposed to Western countries which are strict on how a country governs itself before approving lending.

“Loans from China accrue more interest and require a shorter time to service as opposed to bodies such as the World Bank or the International Monetary Fund,” said IEA’s John Mutua.

MEDIA

The IEA held a session with officials from the Editors’ Guild, where they discussed public debt matters and how the public should be informed on the same.

The organisation’s research also pointed out that Kenya’s ability to service its debts as compared to the revenue ratio has been declining since 2017.

Editors Guild Chairman Churchill Otieno noted that journalists have an extra task to investigate how the public debts are utilised and report to the people.