Kenya’s Public Debt is Unsustainable and Predatory

Published on 21st May 2019

Hon Raila Odinga and President Uhuru Kenyatta recently visited Beijing to seek a Sh368 billion loan for the extension of the Standard Gauge Railway (SGR) from Naivasha to Kisumu and the revival of the Kisumu Inland Port whose fortunes have dwindled due to the collapse of the dilapidated railway. Unfortunately, the loan was not granted to Kenya. However, the government to the surprise of many has managed to secure $2.1 billion Sh210 (billion) in the new Eurobond that will be repaid in two tranches of 7-year and 12-year tenors, in an issue that was oversubscribed 4.5 times.

The Treasury has priced the bond from seven per cent for the 7-year issue and eight per cent for the 12-year trench, below the initial interests of 7.5 and 8.5 per cent respectively. The loan will be used to finance some ‘unspecified’ development infrastructure projects, support expenditure budget and to refinance the $750 million (Sh75 billion) of the first Euro-bond issued in 2014 which is due on June 24. Both the 7-year and the 12-year tenors will be amortized equally, at $300 million (Sh30 billion) and $400 million (Sh40 billion), respectively, per year in the last three years to maturity in order to avoid a spike in repayments.

This is the third time Kenya has been in the International Debt Capital Markets. The first was in June 2014, when it launched the debut bond of Sh200 billion and tapped for a further $750 million, while the second was in February 2018 when a dual-tranche of Sh200 billion was issued 10-year

tenor of Sh100 billion and 30-year tenor of a similar amount. The new Eurobond stretches further the country’s public debt to at least Sh5.5 trillion. That means public debt to hurt ordinary Kenyans more.

Economic pundits have asked the country's leadership to check it growing appetite for loans lest we plunge in a debt crisis. Ironically, Raila and Uhuru, however, maintain that borrowing is sustainable and it is the only way to spur development projects in the country.

The debate and acrimony over Kenya’s public debt, its rapid growth, and whether it is sustainable is serious and therefore, any comparisons drawn to justify opposing arguments should not be political but purely rational. Former VP and NASA Founder Musalalia Mudavadi as an economist has argued in section of media that the economy is sliding fast toward total collapse because of borrowing to pay for recurrent expenditure and looting. Musalia among other experts have projected that Kenya's national (public) debt is likely to skyrocket by the time Uhuru leaves power in 2022.

Some, including IMF that has joined the fray, argue that even at about 52 per cent to GDP, our public debt should not cause any concern because the US’s debt ratio is 105 per cent of GDP. This line of thought is totally illogical, fallacious and unwarranted for, as an economy, we are not comparable whatsoever with the America.

How can we compare a B+ economy with A+ economy? Going by 2012 figures, our total revenue was $7.3 billion while US’s was $3 trillion. In other words, our economy is 0.24 per cent of the US economy! With regard to GDP per capita, US stands at $53,041.98 while Kenya stands at $1,245.51 which means that an American citizen is 42.58 times better off than the Kenyan counterpart. USA’s budget deficit is positive 2.8 per cent and Kenya’s is negative 4.6 per cent but, we are a net importer economy and this statistic refers to year 2012 when our public debt declined before picking in 2013 up to now. Then on matters of wealth inequality, the America’s Gini index stands at 0.38 while Kenya’s stands at 0.427 which really means that over 43 per cent of Kenyans live below poverty line.

About 25.3 per cent of the US’s GDP accounts for social security expenses to support the under-privileged. In Kenya, we have no idea how to handle social welfare issues hence, the reason we even steal medical supplies. Kenya’s current trend of public debt accumulation is unsustainable and will surely hurt Kenyans more.

Ironically, prior to the famous handshake in March 2018, those supporting Jubilee’s accumulative public debt like Raila were largely seen as the last hope of the section of Kenyans who were very keen on being gatekeepers on Jubilee regime excesses. Although the truce has since brought political stability in the country, this is despite the fact that details of the pact remain scanty to date. Kenya is already struggling with a piling debt burden courtesy of the government’s appetite for borrowing.

Since the Jubilee government came to power in 2013, the public debt has risen from about KSh 1.8 trillion to KSh 5.4 trillion in May 2019 according to the Central Bank of Kenya (CBK) data. By September 2018, the total public debt was KSh 5.1 trillion, an increase from KSh 4.4 trillion in June 2017. The debt stood at KSh 3.6 trillion in 2016, KSh 2.8 trillion in 2015, and KSh 2.3 trillion in 2014 according to the Treasury.

Hence, going by the exchequer's projections, the national (public) debt is likely to cross the KSh 7 trillion not by June 2022 when President Uhuru Kenyatta's 10-year reign comes to its end However, there have been concerns those huge chunks of the billions of shillings being borrowed has been ending up in individuals' pockets.  This calls for Kenyans to brace for tough economic times in future.

By Okwaro Oscar Plato

The author is a policy analyst. The views are his own.

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