What you need to know:
- The loans come with harsh conditions.
- Put together, an economy can never grow through loans.
The government’s obsession with debt should alarm the citizens. Constant borrowing to keep the economy afloat is not a viable strategy: It is short-termism and fraught with perils. The country is getting mortgaged and, sooner rather than later, may find itself unable to fulfil its financial commitments.
Last week, the government obtained a new loan — of Sh255 billion — from the International Monetary Fund (IMF). On paper, the loan is intended to boost the country’s recovery plans following the year-long ravages of the Covid-19 pandemic.
In the past year, the government has cumulatively borrowed some Sh1.2 trillion from various international lenders for Covid-19 emergency response. However, there is very little to show for it. The money is never used for the intended purpose. Which is the reason Kenyans should get worried.
Three issues come to the fore. First is the usage of the cash and how it benefits the citizenry. Secondly, the country is piling up a huge debt burden. As at the end of last year, the public debt portfolio had risen to Sh7.2 trillion — more than twice its annual budget and representing more than 60 per cent of gross domestic product (GDP). This is dangerous; the country is headed to a situation where it may not pay back the loans.
Thirdly, the loans come with harsh conditions. For instance, the IMF insists that the government has to raise taxation rates and stop relief measures that cushion citizens against harsh economic conditions. Further, it pushes for public sector restructuring, which, though vital for creating efficiencies, leads to job cuts and income losses and, hence, exacerbates poverty.
Put together, an economy can never grow through loans. Instead of rushing for loans, the government should create a conducive environment for economic productivity that would lead to enhanced tax collections and reduce reliance on cash bailouts. Besides, it should minimise the lockdowns imposed due to the coronavirus pandemic because they depress the economy.
It would be best for the Jubilee administration to wean itself of the loan dependency syndrome: It is unsustainable.