Return of ‘International Mother and Father’ manifests the severity of Kenya’s economic crisis

Kenyans on Twitter (KOT) ran amok on Monday when most people would have been enjoying the last day of the long Easter weekend.

They were angered by the International Monetary Fund (IMF) lending Kenya $2.3 billion.

Their single-minded demand to the organisation was #StopGivingKenyaLoans.

Most of the KOT, as tweeting Kenyans are (in)famously known, would have been too young to remember when, in the 1990s, during the Daniel arap Moi and Kanu era, the IMF and World Bank were  household names in the country for – you guessed it right – giving Kenya loans.

The two institutions were also known for giving countries tough conditions and regulations that journalist and humourist  Wahome Mutahi aka Whispers, known for giving people monikers, called them our International Mother and Father.

Social media has given millennials a voice and a platform.

They feel they would rather be orphans than have the wealthy global parents give us conditional loans.

But what does this loan mean for the country and how did we get here?

Early this month, the IMF reported downgrading Kenya’s debt-carrying capacity from strong to medium, signalling increased liquidity risks due to the government spending a larger share of the country’s taxes on debt repayment at the expense of providing critical services like health care, education, electricity, agriculture and cash transfers to the disabled and other vulnerable people in society.

Over the past decade (2010-2020), the structure of Kenya’s public debt has significantly changed. 

Debt vulnerability

The government increased its appetite for expensive commercial debts, which has continued to worsen the country’s public debt vulnerability. 

The last decade saw the country’s public debt from commercial lenders increase by a whopping 750 per cent, from four per cent share in 2010 to about 30 per cent in 2020 leading to a sharp increase in the cost of debt-servicing and financial risks. 

Public debt from multilateral lenders declined by 50 per cent, from 66 per cent share in 2010 to 33 per cent in 2020.

The share of loans from bilateral lenders has generally remained the same – around 33 per cent.

The government policy is to limit commercial loans while expanding its share of multilateral lenders. 

This is one of the main reasons Kenya is witnessing increased borrowing from the IMF.

Government expenditure on interest payment has increase by 340 per cent, from Sh121 billion in 2013 when Mr Uhuru Kenyatta became President to 537 billion in 2022 when he will conclude his second and last term in office.

Total government expenditure has moved from Sh1 trillion in 2013 to Sh3 trillion in 2022, representing a 200 per cent growth for period.

The country’s total ordinary revenue on the other hand has increased by 130 per cent over the same period; from Sh777 billion in 2013 and is expected to hit Sh1.8 trillion next year. 

Growth in expenditure on interest rate, total government expenditure and ordinary revenue is 300 per cent, 200 per cent and 130 per cent respectively for the 2013- 2022 period, meaning we are living way beyond our means.

This persistent increase in government spending, coupled with wastage and theft has increased the country’s vulnerability to slight financial or economic shocks. 

The Covid-19 pandemic was the last straw that broke the camel’s back.

In the supplementary budget 1 for the 2020/21 financial year ending on June 30, 2021, the National Treasury indicates that out of Sh1.6 trillion that the Kenya Revenue Authority (KRA) expects to collect in taxes, about 958 billion – or 60 per cent of the amount – will go to debt repayment. 

Simply put, for every Sh10 that KRA will collect, Sh6 will be used to repay the country’s loans.

In the 2021/22 financial year, Kenya’s expenditure is expected to hit the Sh1 trillion mark for the first time.

Treasury projects

The Treasury projects that KRA will collect Sh1.8 trillion in taxes and spend about 1 trillion on debt servicing, including  interest and principal redemption. About Sh370 billion will be transferred to county governments as equitable share. 

The Sh430 billion left is not enough for the Executive (Sh1.9 trillion), Parliament (Sh38 billion) and the Judiciary (Sh18 billion) hence acquisition of more debt to fill the void.

Since debt service is the first nondiscretionary charge on our revenue, the balance, which about Sh642 billion, is not enough to cover expenditure for the national government.

Money should also be sent to counties in time to avert interruptions in services. 

With no other option, the government must borrow to make ends meet. 

The most ideal lender for a country in financial dire straits like Kenya is the IMF because of the low or zero interest charges.

It also lends technical support to resolve issues that led the borrower into a debt trap.

The IMF, for instance, will help the government address crises occasioned by the pandemic, align expenditure with revenue, insist on structural adjustments in State-Owned Enterprises (SOEs) and strengthen monetary policy frameworks. 

Parastatals targeted for reforms include Kenya Airways, Kenya Airports Authority, Kenya Railways Corporation, Kenya Power, Kenya Electricity Generating Company, Kenya Ports Authority and the country’s three largest public universities. 

Struggling financially

These entities were struggling financially even before the outbreak of Covid- 19.

The added financial stress has necessitated government liquidity support, thus increasing spending needs in the context of shrinking revenues and unfavourable economic and financial environment.

Therefore, the passionate citizens petitioning the IMF not to lend Kenya are either economically misinformed, misadvised or ignorant of the effective ways through which the country should avert worse financial and economic crises we are likely to fall into if the lender does not intervene. 

Instead, Kenyans from all walks of life, grassroots civil society organisations, advocacy groups, independent think-tanks, researchers and others should direct their energy to holding the government to account for the borrowed money.

There should be full disclosure of every shilling borrowed and where it is being spent.

The public and all other stakeholders should be involved, and their views considered when making critical decisions. 

In addition, Kenyans should use every possible means to make the government cut down on non-essential spending, seal loopholes through which theft and wastage occurs and direct the borrowed funds to economic recovery, job creation, social protection and lowering the cost of living.

John Juma Nyangi is the head of research at the Institute of Public Finance - Kenya