Kenya deep in the mid­dle of debt trap

Business Daily (Kenya) - - EDITORIAL & OPINION -

We are truly in the mid­dle of a debt trap. In an in­ter­view with Reuters this week, Trea­sury sec­re­tary Henry Rotich dis­closed that Kenya has no choice than to is­sue a Eurobond to re­pay a $750 mil­lion (Sh77 bil­lion) loan, which the gov­ern­ment con­tracted from a syn­di­cate of banks in Oc­to­ber 2015. We are in a sit­u­a­tion where the gov­ern­ment has now re­sorted to bor­row­ing from Pe­ter to pay Paul.

I must say that I found some of the state­ments made by the min­is­ter in the in­ter­view re­veal­ing. First, he dis­closed that even though the $750 mil­lion syn­di­cated loan was due on Oc­to­ber this year, the gov­ern­ment had been forced to ne­go­ti­ate with bond hold­ers to ex­tend the ma­tu­rity by six months to April 2018.

Sec­ondly, Mr Rotich re­vealed that bond hold­ers hold­ing 10 per cent of the is­sue had flatly re­fused to ex­tend ma­tu­rity of the loan to April, forc­ing the gov­ern­ment to fork out the money to pay them.

Clearly, our cred­i­bil­ity in the eyes of in­ter­na­tional credit mar­kets has been dented by this trans­ac­tion. In in­ter­na­tional cap­i­tal mar­kets, your stand­ing in the eyes of cred­i­tors is tar­nished the mo­ment you start ne­go­ti­at­ing debt reschedul­ing and be­gin plead­ing for ex­ten­sion of ma­tu­rity.

As things stand, we are more or less treated in tech­ni­cal de­fault. It is not a good place to be be­cause, over the decades, Kenya has prided it­self on abil­ity to honour its obli­ga­tions to com­mer­cial cred­i­tors.

But so what if Kenya was to be deemed to be in tech­ni­cal de­fault? When­ever a sov­er­eign’s credit rat­ing is marked down, it af­fects bor­row­ing costs for ev­ery­body and– there­fore - in­creases the cost of do­ing busi­ness in the econ­omy.

Whichever way you look at it, we are deep in a debt trap- con­stantly bor­row­ing more money to ser­vice older loans. In­deed, it ap­pears that we are ap­proach­ing a point where all the loans we bor­row from in­ter­na­tional mar­kets will now go into re­pay­ing debts in­stead of be­ing de­ployed into in­fra­struc­ture spend­ing.

While the min­is­ter can take so­lace in the fact that he has man­aged to con­vince bond hold­ers to post­pone re­pay­ment of the $750 mil­lion syn­di­cated loan to April next year, it is just but a tem­po­rary re­lief.

In the com­ing months, things will not be easy for him be­cause an IMF stand-by fa­cil­ity of $1.5 bil­lion con­tracted in March 2016 will also be com­ing due for re­tire­ment the very same month he will go­ing to the mar­ket to raise money to re­pay the syn­di­cated loan.

A year later, in March 2019, two more syn­di­cated loans amount­ing to a to­tal of $1.05 bil­lion will be­come due. They in­clude $250 mil­lion from PTA Bank and $800 mil­lion from a syn­di­cate of Citi, Stan­dard Char­tered and Stan­dard Bank SA, both con­tracted in 2017.

A few months later, the ghost of the 2014 Eurobond will be com­ing back to hound the gov­ern­ment since part of that con­tro­ver­sial Eurobond- an amount of $750 mil­lion- ma­tures in June 2019.

And the rate at which we have gob­bled up Chi­nese loans, es­pe­cially for the stan­dard gauge rail­way (SGR) projects, is sim­ply fright­en­ing.

We bor­rowed a whop­ping $ 3.8 bil­lion for the sec­tion be­tween Mom­basa and Nairobi. Then we hur­riedly signed off an­other $1.5 bil­lion for ex­tend­ing the line to Naivasha.

We have signed a com­mer­cial con­tract with a Chi­nese rail­way con­trac­tor to al­low us ac­cess to an­other $5 bil­lion in Chi­nese loans for the ex­ten­sion of the rail­way from Naivasha to Mal­aba.

In to­tal, we are bor­row­ing a mas­sive $10 bil­lion from the Chi­nese to fund the rail­way from Mom­basa to Mal­aba. That amount is nearly 15 per cent of our gross do­mes­tic prod­uct.

The ser­vic­ing of the $3.8 bil­lion Chi­nese loans bor­rowed to fund the Mom­basa-nairobi sec­tion of the SGR is ex­pected to kick in this fi­nan­cial year. Do we have the right to sad­dle un­born gen­er­a­tions with such huge loans?

Un­til 2006, only South Africa had is­sued a Eurobond in the whole of sub-sa­ha­ran Africa. Like us, Many African coun­tries have since jumped onto the band­wagon.

I like the way No­bel lau­re­ate, Joe Stiglitz, posed the ques­tion in a re­cent ar­ti­cle: ‘’Are short-sighted fi­nan­cial mar­kets work­ing with short-sighted gov­ern­ments to lay the ground­work for the world’s next debt cri­sis?” I rest my case.

We are in a sit­u­a­tion where the gov­ern­ment has re­sorted to bor­row­ing from Pe­ter to pay Paul

JAINDI KISERO jaindikisero@gmail.com

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