Our public debt is unsustainable

Rather go to bed without dinner than rise in debt – Benjamin Franklin


President Uhuru Kenyatta and Hon. Raila Odinga recently (2019) toured Beijing to seek a Sh368b 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. 

However, the Government, to the surprise of many, managed to secure $2.1b Sh210b in the new Eurobond that was to be repaid in two tranches of 7-year and 12-year tenors, in an issue that was oversubscribed 4.5 times.

The Treasury priced the bond from 7% for the 7-year issue and 8% for the 12-year trench, below the initial interests of 7.5% and 8.5% respectively.

The loan will be used to finance some ‘unspecified’ development infrastructure projects, support expenditure budget and to refinance the $750m (Sh75m) 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 $300m (Sh30b) and $400m (Sh40b), respectively, per year in the last three years to maturity in order to avoid a spike in repayments.

That being 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 Sh200b and tapped for a further $750m, while the second was in February 2018 when a dual-tranche of Sh200b was issued 10-year tenor of Sh100b and 30-year tenor of a similar amount.

The new Eurobond stretches further the country’s public debt to at least Sh5.5 trillion. This February, once more IMF and Kenya have reached on $2.4b, 38 months deal equivalent to Sh262.6b to help the country recover from Covid-19 effects. The data from Central Bank of Kenya (CBK) reveals that the country’s public debt has grown by 0.8 to Sh7.2trillion between March 2020 and January 2021. That means public debt will hurt ordinary Kenyans more. 

Economic pundits have asked the country’s leadership to check its growing appetite for loans lest we plunge in a debt crisis. Ironically, Uhuru and Raila, 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 Musalia Mudavadi as an economist has argued in sections of media that the economy is sliding fast towards 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. And indeed that reality is here with us.

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

How can we compare a B+ economy with an A+ economy? Going by 2012 figures, our total revenue was $7.3b while US’s was $3 trillion. In other words, our economy is 0.24% 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% and Kenya’s is negative 4.6% 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%of Kenyans live below poverty line.

About 25.3% 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.

Though 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 Sh1.8trillion to Sh5.4trillion in May 2019 according to CBK data. 

By September 2018, the total public debt was Sh5.1trillion, an increase from Sh4.4trillion in June 2017. The debt stood at Sh3.6trillion in 2016, Sh2.8trillion in 2015, and Sh2.3trillion in 2014 according to the Treasury.

Hence, going by the exchequer’s projections, the national (public) debt is likely to cross the Sh10 trillion by June 2022 when President Uhuru Kenyatta’s 10-year reign elapses.

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. 

Writer consults with Gravio. The views are his own

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