KENYA: HOW $18M LOANS PER DAY PUSHED KENYA INTO $65BN DEBT HOLE
APRIL 9, 2013. President Uhuru Kenyatta is sworn in. As he assumes the most powerful office in the land, Kenya’s total public debt is just $16 billion.
If this debt was shared among the then population of 45.5 million Kenyans, each citizen would owe about $364.
After settling in State House, the seat of the presidency, President Kenyatta’s youthful government changes tact, and starts an unprecedented spending on infrastructure, which required that he stepped hard on the debt gas pedal. The political promises had outweighed the cash in the coffers.
Sh7.2 trillion public debt (US$65.5 billion)
November 2020, 92 months later, Kenya’s mountain of public debt has now climbed to Sh7.2 trillion. The Jubilee administration has been borrowing Sh59 billion every month, about Sh2 billion every 24 hours, thrusting East Africa’s biggest economy into a dangerous cycle of debt.
Where that money has been sunk - in a country where corruption and kickback driven projects litter the terrain - is the question that dodges observers.
But the effects of the debt spree are becoming very difficult to hide.
Government is delaying to pay salaries. Counties are going for three months without disbursements - and the onceconfident Treasury mandarins are mean with numbers.
Every citizen now owes Sh137, 000, which is 3.4 times more than what they owed just eight years ago.
Domestic borrowing
Worse, for very Sh100 the taxman is collecting in taxes, the Treasury is spending Sh60 on debt repayments. Domestic borrowing has also been rising.
For instance, servicing costs for six months between July and December
2020 stood at Sh413.51 billion against tax receipts of Sh673.61 billion.
A cash strapped government is increasing taxes in the middle of a pandemic. The economy that is dangerously addicted to debt has been hit by the Covid-19 pandemic, and has just slipped into a recession for the first time in two decades.
Lacking the stomach to tackle spiralling debt, Treasury is extending its requests for a debt repayment holiday to all bilateral lenders, desperately looking for some breathing space to reduce its debt interest burden.
First, it was global ratings agency Moody’s that flashed the first red signal in 2008, after it downgraded Kenya’s credit scores to B2 from B1, citing pressure from the country’s rising debts.
“The drivers of the downgrade relate to an erosion of fiscal metrics and rising liquidity risks that point to overall credit metrics consistent with a B2 rating,” Moody’s said in its downgrade note to investors.
‘High credit risk’
“The fiscal outlook is weakening with a rise in debt levels and deterioration in debt affordability that Moody’s expects to continue.” While a B2 is considered a “high credit risk,” Treasury did not like the new status and quickly disputed the downgrade, arguing that it did not reflect the country’s fundamentals.
Then came International Monetary
Fund (IMF) and the World Bank, which in various reports raised concerns after Kenya’s GDP to debt ratio crossed the 50 percent mark and started racing towards 60 percent. The recommended threshold for developing countries is 40 percent. And that was not all.
Parliament’s budget office also joined the chorus, advising repeatedly in its quarterly reports that Kenya needed to ease its foot on the debt gas pedal, and focus on completing old projects before starting new ones.
Other reputable institutions and independent economists, such as the Institute of Certified Public Accountants of Kenya (ICPAK) and the Institute of Economic Affairs (IEA), have also added their voice on the debt crisis facing the country.
But it is the downgrade of Kenya’s credit ratings outlook by Moody’s and Standard and Poor’s (S&P) and the raising of Kenya’s risk of debt distress to high by the IMF that jerked Treasury mandarins into action.
In changing Kenya’s risk of debt distress to high from moderate, the IMF said Kenya’s debt stood at 61.7 percent of GDP at the end of 2019, up from
50.2 percent at the end of 2015, driven up by budget deficits caused by large infrastructure projects, such as a new railway line.
Major risk for economy
By this time, it was now indisputable that debt has now become a major risk for the economy, and the Treasury was now recognising it in its budget policy statements.
Being among 76 low-income countries benefitting from a global Debt Service Suspension Initiative (DSSI) by the
G20 grouping of the world’s largest economies is not enough to soften its debt crisis triggered by the rising cost of servicing public debt.
A restless taxman is ruthlessly pursuing taxpayers struggling to keep their businesses afloat. A broke Treasury, unable to follow through with austerity measures, is running out of options.
But the biggest nightmare is a growing debt crisis, whose all danger signals are blinking red.
Just how did Kenya get here? Where did the Sh5.4 trillion borrowed by the Jubilee administration go? And how has President Kenyatta’s finance bosses fared compared with their predecessors.
As Kenyans jeered and smeared mud on President Daniel arap Moi in December 2002, tired of a president who had ruled the country with an iron fist, and left the country’s economy in tumbles, the stock of Kenya’s total public debt was just Sh630 billion. This is according to official data from the Central Bank of Kenya (CBK).
Mwai Kibaki
Then Mwai Kibaki, an economist, and a former finance minister came in December 2002 during the big opposition wave that swept him into office.
Kibaki increased Kenya’s public debt to Sh1.8 trillion. This translated to about Sh14.5 billion every month or Sh480 million every day. But he presided over a government that lived within its means, only borrowed when it was necessary, but most importantly, weaned the economy from the over dependence on foreign lenders, leaving behind a country that could comfortably fund its own budget.
Jubilee government
That was before the Jubilee government came in and threw all caution to the wind, borrowing Sh5.4 trillion in 92 months.
To put this number in perspective, if this amount was to be used to build the standard gauge railway (SGR), then Kenya would have put up 17 such railways like the one between Nairobi and Mombasa around the country. If it was just to build super highways with the money, then it will put up 154 Thika superhighways.
Though debt is driven by the spending priorities of the government of the day, it is the finance ministers, who prepare the budgets, advice the governments on how best to fund them. They are also the men and women who sign off on the various debt instruments and loans borrowed. Best and worst finance ministers
To put in perspective how avaricious the current administration is in terms of debt accumulation, we have gone back to September 1999, when Chris Okemo took over the Ministry of Finance, to track how Kenya got where it is today.
Okemo served for about 21 months. During his time, he found the total debt book at Sh503 billion. In his time, Okemo borrowed about Sh100.9 billion. This works out to Sh5 billion every month or Sh160 million every day.
His successor, Christopher Obure was at the Treasury for about one year from December 2001. In 12 months, Obure borrowed Sh23.2 billion. This is about Sh1.9 billion every month or Sh65 million per day. Obure, the last of President
Moi’s finance ministers slowed down the pace at which the government was borrowing substantially, and when he left, the country’s public debt stood at about Sh630 billion.
Most frightening nightmare
If Rotich’s era was a nightmare, then Ukur Yatani’s era is going to be the most frightening nightmare of all time. In Just 15 months to November 2020, Yatani had increased Kenya’s debt by Sh1.2 trillion. This works out as Sh77 billion per month or Sh2.6 billion per day.
At this pace, by November 2021, Yatani would have borrowed another Sh950 billion, which will bring Kenya’s debt to Sh8.2 trillion. This will leave him with just about Sh800 billion to breach the Sh9 trillion debt ceiling.