Kenya’s debt trajectory alarming, watch out

Tuesday December 4 2018

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Once again, we revisit the question of the government’s appetite for loans because we are headed to the cliff. Fresh information has emerged that the government plans to take out another loan, of Sh100 billion, to pay off two syndicated loans that are due — a perfect case of robbing Peter to pay Paul.

Our concern, however, is the rising debt portfolio, a subject we have consistently discussed because of its long-term implications on the economy. So far, the government owes its creditors Sh5.04 trillion — more than one and a half times its budgeted expenditure for the current financial year. Multilateral funders such as the International Monetary Fund have raised the alarm over Kenya’s GDP-debt ratio, which is nearly over the threshold.

In this new loan, the government is seeking cash to pay off the Eurobond cash taken in 2014. The challenge is that the syndicated loans are expensive, hence burdensome to taxpayers. Importantly, and specifically in regard to the Eurobond, controversy has persisted over it. The National Treasury made strident attempts to justify its use but the Auditor-General’s verdict was that the utilisation was inexplicable. Curiously, part of the explanation was that some of the money was used for recurrent expenditure, itself not a prudent application of borrowed cash. Ideally, loans should be used for capital development, not just consumption.

Even so, there is apprehension over the loans for capital development because the cost of those projects are highly inflated and, for some, the output is not worth the investment. The standard gauge railway, the country’s largest capital investment in recent years, and which, though having arguably transformed transport for people and goods between Nairobi and Mombasa, is a costly undertaking that will take years to pay off.
It is critical that the question of public debt be subjected to thorough scrutiny. Parliament is constitutionally obligated to do that but it has performed that function quite perfunctorily. In the first place, in 2014, Parliament amended the law to raise the cap on external borrowing from Sh1.3 trillion to Sh2.5 trillion. That allowed the government to expand its borrowing portfolio.

Subsequently, however, the Public Finance Management Act was amended in 2015, taking away that oversight function from Parliament, which has opened an avenue for increased borrowing. Now the National Treasury can borrow as much as Sh5 trillion, which exposes the country very badly.
The point we are making is that the country is walking dangerously and we must deal dispassionately with the debt regime. The current trajectory is unsustainable.