What you need to know:
- In just one year, Kenya borrowed Sh632 billion from both external and domestic sources.
- Apart from being expensive, the commercial loans put a strain on the repayment due to their shorter terms.
- Kenya’s uptake for pricey loans from commercial banks was on the upward trend with the more favourable multilateral sources constant over the last year.
Kenyans should prepare for tougher times ahead to meet the demands of debt repayment as the country’s appetite for loans remain high and not likely to narrow anytime soon.
The citizens will have to squeeze more taxes, be ready for inflationary pressure and fight bankruptcy as the government prepares to plug the gulf left by heavy borrowing particularly from China which now accounts for up to 65 per cent of bilateral loans.
The latest data from Treasury presented to Parliament last week show the country’s appetite for bilateral loans and the commercial loans which are usually high priced has been on the rise compared to the less expensive multilateral loans, putting a strain on the dragging revenue collection.
In just one year, Kenya borrowed Sh632 billion from both external and domestic sources with the later having overrun by Sh25 billion in what Treasury attributed to increase uptake of domestic debt.
“The overall increase in public debt is attributed to increase in external loan disbursements and also increase in the uptake of domestic debt during the period,” read the statement in the Quarterly Economic and Budgetary Review for the 2017/2018 Financial Year.
Although Treasury Cabinet Secretary Henry Rotich did not respond to multiple texts and phone calls to discuss the latest debt numbers, Kenya’s increasing appetite for loans to finance high capital infrastructure projects has drawn mixed reactions from finance analysts with some being optimistic about the expected returns from the projects while others call for alternative investments to avoid an alarming debt distress.
Kenyatta University chairman of Economics department Dr Paul Gachanja believe that the debt burden is a necessary evil that Kenya must tighten its belt to secure a better future for its growing population.
He told the Nation on Monday that the huge transport and power projects Kenya is borrowing for, have a long repayment period and their benefits will have to take time as the citizens are pressed to support them.
“Any serious government will obviously invest in the future generations and such projects are very important. It is however on the prudence with which these funds are utilised that will determine whether we see value for money in the long run. Mismanagement is our biggest setback,” Dr Gachanja said.
His advice that Kenya should try and stick to cheaper loan however is overtaken by the numbers presented last week.
Kenya’s uptake for pricey loans from commercial banks was on the upward trend with the more favourable multilateral sources largely constant over the last year.
Bilateral sources had also recorded a gradual growth rising by Sh1.1trillion between June 2017 and June 2018 according to the latest data.
Apart from being expensive, the commercial loans put a strain on the repayment due to their shorter terms.
Nairobi-based economic analyst Robert Shaw however believes Kenya’s infrastructure-driven borrowing will tie up the current and the future generations on high unnecessarily high costs that would be avoidable if proper sustainability analysis was done.
He says the mega projects like the Standard Gauge Railway may have had a lighter debt load if the government considered a cheaper option to achieve the same objective.
“We must surely keep asking the question whether the rate at which this debt is growing is sustainable. Once we get it wrong on the costs of these projects, then we are straining for a debt that is not worth it. What about other critical infrastructure like hospitals and schools?” Mr Shaw paused.
Concerns over Kenya’s rising debt burden has been streaming since 2016 when the World Bank warned that the rapid rise in borrowing, especially from China would a huge strain to the country.
“Kenya still has a heavy debt burden and China’s loans can bring debt to unsustainable levels,” the bank warns in a policy research working paper titled Deal or No Deal, Strictly Business for China in Kenya released in April 2016.
Last year, the lender repeated the warning that more loan was fast putting Kenya’s economy on a possible risk of turbulence saying that borrowing to finance infrastructure projects should be balanced with the dire risks of over borrowing.
In February, global credit ratings agency Moody’s raised the red flag over Kenya’s rapidly rising public debt saying it was weakening the country’s ability to repay its lenders.
IMPORTS FROM CHINA
Loans from China which accounted for close to 15 per cent of the Sh226 billion repaid to external lender last year has been a great concern as fears rise that Beijing may take too much control of the Kenyan economy.
Already the country’s construction industry has been dominated by Chinese firms, trade to the region is thinning out thanks to imports from China and the manufacturing industry is facing heavy competition from the cheap Chinese goods flowing into the market.
Apart from ceding sovereign muscles to China and other lenders, analysts also fear the country may soon have to use its critical facilities like the ports and resources like oil as collaterals as repayment bills bloat beyond revenue collection.
Taxation strains like the proposed 16 per cent value Added Tax on petroleum products set to start next month are some of the consequences Kenyans may face due to the heavy debt load.