How Uhuru Has Sunk Kenya Into A Worst Debt Crisis With His Appetite For Expensive Loans

KEY POINTS:

  • President Uhuru Kenyatta has clearly sunk the country into its worst debt crisis with his appetite for expensive commercial loans for over nine years.
  • On Friday last week, IMF approved yet another facility worth $2.34 billion (Sh255 billion) for Kenya.
  • The debt crossed the Sh7 trillion mark last year, or 65 per cent of GDP, up from Sh5.81 trillion the previous year.

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President Uhuru Kenyatta has clearly sunk the country into its worst debt crisis with his appetite for expensive commercial loans for over nine years.

On Friday last week, IMF approved yet another facility worth $2.34 billion (Sh255 billion) for Kenya, which has elicited a lot of reaction even prompting Kenyans to start an online petition to ask IMF to stop loaning Kenya.

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So far about 200,000 Kenyans have petitioned the IMF not to give the government any credit.

The debt crossed the Sh7 trillion mark last year, or 65 per cent of GDP, up from Sh5.81 trillion the previous year.

It has been rising by almost Sh1 trillion annually in the last six years, having jumped to Sh5.04 trillion in 2018 from Sh4.41 trillion in June 2017. The debt was Sh3.62 trillion in June 2016, Sh2.83 trillion in June 2015 and Sh2.37 trillion in June 2014.

Economists have warned that unless the government quickly renegotiates with its financiers to reschedules some huge loans, an economic recession would be inevitable.

The poor strategy by Treasury mandarins saw the government borrow heavily from the international market, accumulating loans with a short repayment period.

Some of the money borrowed expeditiously went into building new roads, a modern railway, bridges and electricity plants, driving up borrowing to plug the budget deficit.

Pressure for repayment of the loans forced the government to commit more than half of its annual revenue to pay the loans.

Over time, little cash was left for strategic sectors of the economy that would be able to generate resources to drive growth.

Kenya is faced with ballooning revenue shortfalls caused by the Covid-19 pandemic that has  disrupted  the economy.

The Treasury, therefore, will accelerate borrowing over 14 months.

Analysts said growth in public debt has partly been driven by over-budgeting, leading to ambitious tax targets, which have largely been missed.

When President Kenyatta assumed office in March 2013, the public debt stood at a mere Sh1.7 trillion which shot up to Sh1.8 trillion by June the same year.

However, the Jubilee administration, which started its ninth year in office last March, will push the country’s public debt to Sh7.8 trillion by June, in two months

According to the 2021-22 Budget Policy Statement, Uhuru’s administration will in the next financial year break the Sh9 trillion budget ceiling set by Parliament, worsening the debt burden on Kenyans.

The government is projected to borrow a further Sh930 billion, taking the  total debt burden to Sh1.02 trillion by June next year, two months before Uhuru’s term expires.

This means Uhuru will have borrowed slightly more than Sh6.5 trillion to finance his manifesto over 10 years since he took over power from  Mwai Kibaki.

The deficit in the next financial year will be plugged by Sh267.3 billion from external financing and Sh662.8 billion through domestic borrowing.

The Treasury is already pushing to raise the debt ceiling to Sh12 trillion by next year to accommodate the anticipated borrowing to fund the 2021-22 budget.

The total public debt was tracked at Sh7.35 trillion in January, according to the Central Bank of Kenya. The external debt is currently Sh3.8 trillion while domestic debt is Sh3.5 trillion.

In the latest loans, the government has acquired Sh257 billion from the International Monetary Fund, reportedly to bridge the gap in fighting the Covid-19 pandemic.

This brings the total borrowed to fight the pandemic since March 2020 to about Sh1.2 trillion.

Before the IMF loan landed, between March and November 2020, the country borrowed Sh971 billion to fight Covid-19.

This means that country borrowed about Sh121 billion every month in the eight-month period.

Kenya received the first Covid-19 loan of $50 million from the World Bank in April, barely two weeks after the country reported its first case in mid-March. This was followed by $1billion (Sh106 billion) to support its budget and cushion the economy from the impact of the pandemic.

According to World Bank county director for Keny Felipe Jaramillo, the $1 billion financings comprised a $750 million credit from the International Development Association and a further $250 million loan from the International Bank for Reconstruction and Development (IBRD).

The loan was priced at 1.35 to two per cent, with a five-year grace period. The repayment period is 30 years.

A week earlier, the East African nation had received a Rapid Credit Facility worth $739 million (Sh79 billion) from the IMF to help it cover the balance of payments shortfalls this year. It was also hoped it would  cushion the weak shilling that currently trades above 106 units against the greenback.

In the same month, Kenya received €188 million (Sh22 billion) from the African Development Bank to support the government’s efforts to respond to the pandemic and mitigate related economic, health and social impacts.

Debt servicing costs for the first eight months through February 2021 surpassed recurrent expenditures such as salaries, allowances and government administrative expenses for the first time.

This would signal the gravity of the country’s worsening fiscal position.

Total debt repayments in the period amounted to Sh638.29 billion, surpassing expenditure on the day-to-day running of the government by Sh5.71 billion.

RELATED POST: Treasury Finally Approves Release Of ARVs

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