William Ruto defends Sh200bn loan, says State will pay its debts

Deputy President William Ruto has defended government borrowing amid concerns that the country’s debt  is rising to an unsustainable level.

The country borrowed Sh200 billion from international financiers on Thursday as economists warned that the debt load could become unmanageable.

Mr Ruto on Friday insisted that the government was responsible in its borrowing and that the money will be channelled to development projects.

“We are a responsible government and think critically before we borrow money. When we are borrowing we understand the purpose for which the money will be used,” he said, adding that before securing loans the government had considered the interest cost.

In apparent reference to Nasa leader Raila Odinga, Mr Ruto challenged the opposition to list the projects the coalition government carried out with the money they borrowed. Mr Odinga was the Prime Minister in the Grand Coalition government, which was formed in 2008 after a disputed election which sparked violence in parts of the country.

LOANS

“Let them tell us what they did with the loans they took. It is because they have observed that our record as the Jubilee government beats what they did when they we were in government,” he said.

The country’s debt has been growing at 18 per cent per year in the last decade and is now at Sh4.41 trillion, about 57 per cent of the total annual value of economic activities (GDP) of Sh7.71 trillion. The rapid growth has been criticised by the Parliament Budget Office and the International Monetary Fund (IMF) among others.

In net present value terms (when assessed over a period of time) the debt is 48.7 per cent of  GDP, a whisker away from the 50 per cent thresh hold prescribed under the Public Finance Management Act and against an international benchmark of 74 per cent.

Mr Ruto, however, did not explain why the country was securing loans from international bond markets with high interest rates as opposed to concessional loans.

COMMERCIAL FINANCING

“The choice between external commercial financing relative to domestic borrowing should be weighed carefully. As a general rule, external commercial borrowing should meet at least two conditions: one, where loan terms are far favourable relative to local borrowing and the terms are fixed over the term of loan; and, two, to refinance a maturing loan where the exchange rate risk is high,” the Budget Office said this month warning of the risks of commercial loans.

But Kieni MP Kanini Kega said lawmakers would approve a request by the government to borrow more funds despite an appeal by the International Monetary Fund to rein on the State’s appetite for new loans.

The IMF had asked MPs to tame the government’s appetite for borrowing, especially of external loans that are given on commercial terms.

“The high deficit generates more debt and the burden is increasing rapidly and becoming unsustainable,” IMF Resident Representative for Kenya Jan Mikkelsen told the Budget and Appropriations Committee on Thursday

Mr Ruto, who was with Nyeri governor Mutahi Kahiga, Mathira MP Rigathi Gachagua and Mr Kega of Kieni, was addressing residents of Kiawara in Kieni, Nyeri, after commissioning the construction of two roads at a cost of Sh2.5 billion.

INFRASTRUCTURE PROJECTS

The DP said such infrastructure projects have been funded through loans and that the country has the financial ability to settle its debts .

“Any borrowing that has been done is being measured and it must be determined that we have the capacity to pay. It is in the interest of the country and we will remain a prudent and responsible government,” he said.

The country secured Sh202 billion in a new Eurobond issue with the debt set to cost taxpayers a total of Sh323 billion in interest payments during its 30-year lifetime.

Mr Ruto, while revisiting the scandals that rocked retired President Mwai Kibaki’s administration, dismissed fears that the loans will be misused.

“There are people who borrowed money just to play games resulting in Anglo leasing and the Goldenberg government. They paid debts that do not add up. That will not happen,” he said, adding that the Jubilee government will not be drawn into politics seeking to divide Kenyans on tribal lines.

“Even as we focus on 2022, it will only be important if we have united the country. We must focus on ensuring that we develop our country and fulfil the big four agenda,” he said.

 TANGIBLE PROJECTS

Citing the Standard Gauge Railway and the Rural Electrification Programme, he maintained that the government had tangible projects to show for the loans it has secured.

Mr Kega said the National Assembly will not act as a barrier to the country’s desire to borrow money.

“As legislators we are ready to pass any request for loans. The dams that the government is building in my constituency amount to Sh20 billion, I will be in the front line supporting loans,” he said.