Sinking Deep into Debts: Borrowing to Pay Other Debts and Looting the Leftovers

Kenya is sinking deep into debts. The country has become a borrowing nation with those on the borrowing spree singing and dancing for their ‘successes without giving a damn of the burden they are leaving to future generations.

I watched as government officials from the Treasury jumped with joy after ‘successfully’ issuing a Eurobond worth 203 billion shillings. Through their smile, one could clearly see that deep within their souls they knew the burden but they consoled themselves with the fact that it is not them who will be paying for the debt.

The politicians and the government are repeatedly telling Kenyans that the country’s debt is manageable. That we are still the ‘borrowing’ range. Most Kenyans believe that it is true we are ‘still’ within ‘the borrowing range’ but the reality is that we are not.

They say that numbers don’t like but our leaders want to convince us that numbers do lie. If numbers do lie, then Kenya should not be borrowing every left, right and center.

The issuance of the Eurobond earlier this week, much as it was the joy of the government, it just pushed Kenya’s debt to 4.8 trillion shillings. According to International Monetary Fund (IMF), Kenya’s debt is now was at 56.2 percent of the GDP in 2017 with analysts saying that the percent might be as high as 60 percent. This was an increase from 44.0 percent of the GDP 5 years ago and 38.4 percent in 10 years ago.

As far as Kenya’s public debt is concerned, Kenya will use 40.3 percent of her revenue raised from tax to finance a debt payment in the fiscal year 2017/2018. 80 percent (of the 40.3 percent revenue) will be directed towards servicing the interests accumulated on the loans.

Kenya’s appetite to borrow appears to be increasing with each passing day. The appetite is now at a roaring level, threatening to bring the country to her knees. Globally accepted levels of borrowing by IMF are at 50.0 percent of GDP. Kenya is already above this level by more than 6 percent. How justified are our leaders, including the National Treasury in telling us that ‘we are still within a borrowing range’?

The first Eurobond we issued is maturing in June 2019. We may think that is a year away but is just ‘tomorrow.’ Possible liquidity pressure could arise from the large government debt that could even lead to further borrowing to pay it off. Already market analysts have indicated that by June this year, the public debt to GDP ratio could soar above 60.0 percent unless proper policies, which I doubt, are put in place by the government in order to control this.

Dear Kenyans, am not saying that we should not borrow, but did you know that for every three shillings collected from you as tax, one goes into servicing the interest accumulated on the debts we have?

The country has just issued the second Eurobond in 4 years. Do you know that this recent loan will cost you, as the taxpayer, 323 billion shillings as interests? Do you know that the amount collected as interest on this loan is enough to construct another Standard Gauge Railway from Mombasa to Nairobi? The loan will mature in 30 years. Those who have taken it will not be here to pay it. Perhaps that is their consolation. But Kenya will still be here!

Already, the International Monetary Fund (IMF) has raised concerns over the accumulating debt. According to IMF, the country is at risk of losing investors if the government will not shield its appetite to borrow.

“We have been much concerned about the flow of new debts and the size of the fiscal deficit. It will reach a point where the debt is not manageable especially when the deficit continues to rise,” Mikkelsen, IMF representative to Kenya.