How Jubilee government sank Kenya into debt trap
When President Mwai Kibaki left office in March 2013, Kenya’s total public debt stood at about Sh1.8 trillion, which was around 42.8 per cent of the country’s annual productivity.
The National Treasury was financing more than 90 per cent of Kenya’s annual budget, rendering International Monetary Fund (IMF) and World Bank officials in Nairobi almost irrelevant.
Fast-forward to 2021 and Kenya is back to dancing to the IMF tune.
Kachumbari bond
Nine years of the Jubilee administration have seen the country’s public debt load pile up to Sh7.2 trillion as per the official November 2020 figures, which is more than two thirds of the annual GDP.
Treasury Cabinet Secretary Ukur Yatani cannot balance the July budget without borrowing billions of shillings.
That is why the IMF now has a say on every public policy move that the country makes.
The government has to check with the IMF before it makes decisions on how many people to dismiss at troubled Kenya Airways, the tax that you pay on fuel, the manner in which public servants declare their wealth, and the disclosure of companies that win public tenders, among others.
Kenya could be headed back to President Daniel arap Moi’s era, when Washington DC ruled Nairobi.
President Kenyatta found a nation that had weaned itself off external loans under President Kibaki, an economist, and a former long-serving finance minister.
When Mr Kibaki took over from Moi in 2002, the country’s total public debt was about just Sh630 billion.
After the painful Structural Adjustment Programmes (SAPs) of the 1990s, Mr Kibaki shut the door on the IMF and World Bank, having seen how the Bretton Woods experiment failed.
When it assumed office, the youthful Jubilee administration had big infrastructure projects lined up, and nothing was going to stop it, not even huge financing gaps.
What started like a prudent borrowing plan to build roads, a railway, ports and energy projects quickly turned into a borrowing spree.
With the National Assembly and Senate cheering the government on, and increasing the debt ceiling to Sh9 trillion, nothing stood in the way.
The turning point was the Eurobond, which left the country in a trap of borrowing one loan to repay another.
Kenya went for its first Eurobond in June 2014, in which a total of Sh280 billion was borrowed in five and 10-year tranches.
The government went back for another Eurobond in 2018, where it netted Sh202 billion in 10- and 30-year tranches.
In 2019, Kenya was again at the international markets where it raised Sh210 billion in its third Eurobond named the Kachumbari bond that also repaid other loans and funded unspecified infrastructure projects.
Mountain of public debt
The loan was issued in two tranches, one maturing in seven years and the other after 12 years.
In total, the country has raised about Sh692 billion in Eurobonds alone, which started maturing last year all the way to 2024.
By November 2020, some 92 months after President Kenyatta took office, Kenya’s mountain of public debt had expanded to a staggering Sh7.2 trillion.
This means the government had increased debt by a staggering Sh5.4 trillion, and counting.
To put this number in perspective, if this amount was to be used to build the standard gauge railway (SGR), the country would have put up 17 railways like the one between Nairobi and Mombasa.
If it was just to build super highways with the money, then it would put up 154 roads similar to the Thika Superhighway.
The Jubilee administration has been borrowing an average of Sh59 billion every month it has been in office.
This works to about Sh2 billion every 24 hours, pushing Kenya into a dangerous cycle of borrowing.
The debt trajectory compares badly with President Kibaki’s administration, which was borrowing about Sh14.5 billion every month or Sh480 million every day.
Debt management
Every citizen now has a debt of Sh137,000, which is 3.4 times more than what they owed local and international lenders eight years ago.
Worse still, for very Sh100 the taxman is collecting as revenue, the National Treasury is spending Sh60 on debt repayment.
Loan servicing costs for six months between July and December 2020 stood at Sh413.51 billion, against tax receipts of Sh673.61 billion.
Seek bailouts
Despite being among the agencies that have raised the red flag on numerous occasions, the IMF has become the safe bet for Kenya to seek bailouts from.
IMF has already changed Kenya’s risk of debt distress to high from moderate, after the country’s debt stood at 61.7 per cent of GDP at the end of 2019, up from 50.2 per cent at the end of 2015, driven up by budget deficits.
“While Kenya is at high risk of debt distress and subject to zero limits on non-concessional borrowing, the authorities have requested, and staff supports, non-zero limit exceptions for project financing and debt management operations,” the Fund says in the report.
And the government is not planning to slow down its debt appetite any time soon, despite mounting public pressure.
The IMF this week approved an additional Sh1.3 trillion that includes at least two Eurobonds from the international financial markets in the next 18 months.
According to the borrowing plan by the National Treasury contained in its submissions to the IMF, some $4.8 billion (Sh528 billion) of government external borrowing will be concessional compared to $2.3 billion) Sh253 billion in commercial borrowing (Eurobond issuance) for project financing.
In total, the Eurobonds alone will net the country some Sh781 billion.
IMF says the borrowing under the programme allows for another Sh550 billion Eurobond issuance to be used exclusively for debt management operations, which could include a refinancing of the 2024 Eurobond and retiring of relatively expensive syndicated loans.
As things stand, the first order of business for the next president will be to find ways of dealing with a serious debt crisis in 2022, failing which the government will go burst.
As for the taxpayer, the repayment burden will be handed over to future generations for decades to come. BY DAILY NATION
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