We have accumulated too many short-term external loans in a very short period. And, according to the latest statistics on trends in currency composition of our external debts, 71 percent is US-dollar denominated.
Kenya just like many other sub-Saharan Africa countries that have accumulated huge external debts must get worried and start coming up with new ideas on how to mitigate the impact of high interest burden on the loans they have borrowed from international capital markets.
With trends beginning to show that the US Federal Reserve will continue to tighten monetary policy in 2019, the forecasts for countries like ours that have large external debts in their books aren’t too bright.
In the coming year we must brace ourselves to survive in a hostile international economic environment characterised and defined by the end of cheap money, global trade wars, an upsurge in emerging market corporate debt and the impact of Brexit.
Without better planning and action, and if sub-Saharan Africa governments don’t move quickly to introduce measures to mitigate the impact of high interest payments on their external debts, then citizens and businesses in the region must prepare to experience fiscal pain - the cycle of low tax revenues, more taxes and sluggish growth.
In this country, we have now reached a point where we must now start seriously thinking about how to revert to financing infrastructure projects from domestic resources.
Under circumstances where we are forced to borrow, we must be wise and only contract debts from sources we can control and with predictable risks such us international capital markets.
We must start moving away from depending too on from those bilateral deals fronted by Chinese Engineering Procurement and Construction (EPC) contractors and signed in smoke-filled rooms in Bejing.
Instead we should follow a judicious mix of domestic borrowing and progress to seeking financing from regional banks such as the African Development Bank.
Clearly, the China-first China-only model has consigned many African countries into the Chinese trap. In terms of approaching external borrowing with a thoughtful approach, I would say that Tanzania President John Magufuli stands out in sub-Saharan Africa.
You can blame him for many things, but I must say that I admire how the Tanzanians have approached the financing of large infrastructure projects.
Two years ago, Tanzania departed from the China–first China-only model to award the construction of a $3 billion dam to Egyptian contractors on an EPC basis. The largest hydro-electric power plant in the region, the project is partly funded by domestic resources but mainly by the African Development Bank.
Another major infrastructure asset being built by Tanzania is the Standard Gauge Railway. Its longest section - the central line - is being built by EPC contractors from Turkey, with funding from the Turkey Exim Bank. In both incidences the Chinese were kept at bay.
Thus Tanzania has been careful not to fall into the Chinese debt-trap diplomacy. If you are in doubt that we in Kenya are gradually sinking into the Chinese debt, just grab a copy of the budget documents National Treasury Cabinet Secretary Henry Rotich tabled in Parliament last year. The data reveals that loan repayments to Chinese-owned banks will reach a massive Sh82 billion in the year starting July 2019.
We have taken too many Chinese loans. While the huge loans to finance the standard gauge railway are what hit the headlines, we have also borrowed heavily for projects of little economic impact — such as loans to procure equipment for the National Youth Service (NYS) and purchase drilling materials — from China.
Going through the external debt register, you will be surprised at the sheer number and size of loans we have taken for all manner of projects — such as for buying MRI equipment, procuring power materials, rehabilitation of technical institutes, modernisation of Kenya Power distribution systems and building Kenyatta University.
Accumulating too many dollar-denominated loans when your economy is not generating enough dollars is not a clever thing to do.