In terms of the economy, the main talking point in the ongoing presidential campaigns lately has been public debt. I want to give free advice to the presidential aspirants on how to approach this issue if they want to convince us that they have taken time to study and understand the problem and have the solutions to one of the biggest imponderable economic problem of our time.
We have heard enough of the doomsday-mongering about the severity of the problem and all those apocalyptic predictions about how we are just about to experience a Venezuela-type meltdown because of mounting debt.
The presidential aspirants must start by doing a good diagnosis of how we ended up in the current situation in the first place. Tell us how you will get us out of the problem when you come to power.
Debt shouldn’t be stigmatised the way the way it is today in political rallies. It only becomes a problem when the borrowed money ends up in funding unproductive consumption.
If you put borrowed money in large-scale transformative investments—in health, education, railways, ports and motorways—it will generate more than enough growth to repay itself.
The aspirants have not displayed deep knowledge and understanding of the subject matter. You can’t give a good prescription if you don’t do a good diagnosis.
Corruption
The main reason we have had an unsustainable spike in external commercial debts in our books is corruption. If you want to convince us that you are going to tackle the debt, fighting corruption must be at the top of your agenda. Corruption is how we were made to contract a whopping Sh60 billion worth of dollar loans from fringe European banks for dams that were not built in Arror and Kimwarer.
When I grow up, I will write a book about corruption and accumulation expensive commercial debt in the energy sector.
Going through the latest prospectus, we put out as we prepared to approach international financial markets for another Eurobond issue, I came across a telling disclosure: In 2017 alone, the energy sector accumulated a series of loans with Exim Bank China amounting to $2 billion (Sh114 billion). Clearly, the mountains of external debt we borrowed is what funded runaway corruption in this sector.
I want to see one of the presidential aspirants start and lead a national conversation around the mountains of dollar-syndicated loans in our books. Why have we accumulated too many syndicated loans? Syndicated loans are supposed to be a stop-gap measure. We were told that we would issue a Eurobond and use the proceeds to clear the expensive debt.
Biggest scandal
The biggest scandal you encounter as you scrutinise our external debt register is the prohibitively high interest rates we pay on some of the syndicated loans that, in some cases, go as high as nearly 10 per cent. Who else pays these type of interest rates on the dollar in the world today? How did we end up with these loans? Were the arrangers competitively procured?
Yet I’m not surprised that we have ended up with these expensive loans in our books. When you look at the trends in the region, you will find that international bankers and the so-called arrangers are making a killing by colluding with corrupt elites of poorly managed economies to saddle future generations of poor citizens with opaquely arranged syndicated loans.
The best example that comes to mind is the infamous transaction in Tanzania, where it was discovered that arrangers in a syndicated loan transaction had surreptitiously jerked up arrangement fees to factor in kickbacks and backhanders for corrupt government officials. We learnt how arrangement fees on syndicated loans can be used as conduits to make payments to corrupt elites.
I want a presidential candidate who will come up with a plan for institutional reforms in management of public debt. When as a parent you notice that your adolescent son is becoming an alcoholic, the first thing you do is take away the bottle from him.
Drunk with debt
The National Treasury is drunk with debt but it still maintains a wide latitude to commit us to all manner of guarantees and letters of comfort without seeking parliamentary approval. That is why we have huge contingent of liabilities in our books.
I want a presidential candidate to lead us into a discussion on how we can take away the responsibility of issuance and redemption of securities from the National Treasury and the Central Bank of Kenya and give it to a completely independent institution. The remit of CBK is just too wide. Indeed, in performing both roles of conduct of monetary policy and fiscal agent of the government, it is conflicted.
At the very minimum, my preferred presidential candidate must demonstrate to us that they are abreast of the biggest economic challenge of our time: Mountains of debt. BY DAILY NATION