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Cut spending, stop the borrowing spree

Thursday October 24 2019

EDITORIAL
By EDITORIAL
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Harsh reality is beginning to hit the government. It has suspended construction of a major road project linking up Mombasa and Nairobi because the costs are unbearable.

And this is only after the American government, which was the main financier, pulled the rug from under our feet and decreed it would not fund the project because of Kenya’s frighteningly fast rising debt burden.

The estimated cost of rolling out the project is Sh300 billion, close to the Sh320 billion splashed on the standard gauge railway that was completed and launched two years.

LIABILITIES

For quite a while, we have argued that the government’s liabilities were getting out of hand. That the preoccupation with infrastructural development was reaching dangerous levels as returns never justified the investments.

In the broad scheme of things, the current administration has given dedicated attention to infrastructure development, ranging from the SGR to housing and electricity connectivity. There is no disputing the vitality of these developments.

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But economists and planners are acutely aware that investments must give returns and, importantly, be self-sustaining. And here is the catch: All the mega infrastructure development projects are funded through borrowing and always at exorbitant interest rates.

Yet most of the projects for which we borrow are not sustainable. For example, the much-hyped SGR is a loss-making enterprise.

POVERTY

Not surprisingly, even China, which funded the first phase, held back in giving cash for the second phase to Kisumu and eventually Malaba on the Kenya-Uganda border precisely because ours was becoming a debt risk.

Cumulatively, the country has a debt portfolio of Sh6 trillion, twice the national budget and 52.2 per cent of GDP. The challenge with the rising debt regime is that it creates a vicious cycle of poverty.

When the government collects taxes, priority is given to debt repayment, which crowds out cash for recurrent and capital development.

That is what is leads to debt treadmill. Despite this depressing scenario, Parliament recently raised the debt cap incredibly to Sh9 trillion, opening the floodgates for borrowing.

RECKLESS EXPENDITURE

Matters are made worse by the fact that the costs for infrastructure developments are hugely inflated.

A large chunk of the funds is used to bribe officials and their cronies and often the projects are done shoddily due to poor inspection as everybody is compromised.

Ultimately, it is the taxpayer who loses out, paying back loans used for a poorly done project that only benefitted some bigwigs in government. What is upsetting is that top officials who presided over massive rip-offs never get punished.

The government should cut down on reckless expenditure.

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