President William Ruto shakes hand with President Sheikh Mohamed bin Zayed Al Nahyan of the United Arab Emirates.
The big news last week was that we are inching close to accessing a $1.5 billion budget support facility from an Emirati sovereign wealth fund.
First, context. If you track and analyse the budget outturn numbers which the National Treasury publishes in the Kenya Gazette for August this year, the picture that emerges is extremely bleak.
The state is in a financial straitjacket, suffering crippling cash flow problems and only managing to survive by running arrears on payments to pensioners, delaying subventions to county governments and by constantly delaying exchequer releases to constitutional commissions.
You will also notice from the analysis of the published budget outturn numbers that flows from external loans have fallen steeply in the last four months. As a result, domestic borrowing numbers for June, July and August have now shot up to way beyond the normal monthly average. Such large borrowings in an environment of historically high interest rates on government paper are only compounding the situation.
With any significant boost to public spending having been boxed in by the fiasco around the 2024 Finance Bill — with the inflows that were expected from the IMF having been delayed, Kenya is indeed in an acute spending-taxing- borrowing trilemma.
Debt service
Our debt service to revenue numbers have been perilously tottering very close to the debt matrix numbers and thresholds last witnessed in countries like Ghana, Ethiopia and Zambia. These economies were eventually forced to trip into debt default and to resort to desperate survival tactics — debt re-profiling, domestic debt exchange deals, haircuts etc. Pessimists have been predicting that Kenya had reached levels where the country cannot push back the day of reckoning any longer.
Enough of context? What is this Emirati bail-out deal about and what does the entry of the rich Gulf States into Africa’s sovereign debt lending space portend for the cash-strapped economies of sub-Saharan Africa such as Kenya? What are the emerging trends?
First, we are witnessing a trend where Gulf States are coming out to roll out colossal bailout packages to vulnerable African economies. With European and Chinese banks having reduced their exposures in Africa, Gulf State banks and the rich Sovereign Wealth Funds in the region are jumping in to occupy the space.
I recently read a story in Time magazine that reported that, anxious about the influence of Chinese banks in the investment space in Africa, the US has started to urge UAE, Qatar, Kuwait and Saudi Arabia to play a bigger role in the continent.
Just the other day, Saudi Arabia and the Emiratis confounded credit rating agencies by rolling out what ranks as one of the largest sovereign debt bailouts in history.
And, the reason cash-strapped African countries are trooping to the Gulf countries is because the rich Arab States are capable of intervening rapidly and at scale.
Cash-strapped country
In that space, a decision to give out bailout cash to a cash-strapped country is often the discretion of one leader enjoying ultimate authority over large financial resources.
In the case of Egypt, the bailout package by Saudi Arabia and the Emiratis was to the tune of a whopping $70 billion. This begs the question: Where do you get this level of budget support money today, especially in a context where you find yourself permanently in a mood where you feel as if rating agencies have conspired to bring your sovereign rating numbers down?
The bailout packages from the rich Gulf States come in different forms — budget support, oil and gas in-kind support deals, and sovereign bond purchases.
Which brings me to what I see as yet another emerging trend. Gulf States are leveraging their newly acquired status as the only source of quick-disbursing budget source money for struggling African countries to secure favourable investment opportunities for their companies.
In Egypt, the opposition parties have charged that the Emiratis money is forcing the government in Cairo to privatise public assets under duress. Critics have accused the government of ‘commodifying’ public assets.
What does the landscape look like for Kenya? Just like swallowing a palliative will bring down the pain and fever from a Malaria attack but not cure the disease, injection of quick-disbursing Emirati cash can only give our government a temporary respite.
But the trends I see suggest that we are likely to see increased activity in the PPP and privatisation space by Emirati entities.
The crippling cash flow crisis may force the government — like they are always forced by the IMF and the World Bank — into gambling with very politically unpopular decisions to access budget support bailout money from the rich Arabs. I see President William Ruto’s political will to press on with politically unpopular reforms being tested to the elastic limit.
