Rating agency Moody’s latest warning that Kenya faces the danger of losing fiscal credibility should we fail to make policy reforms agreed with the International Monetary Fund (IMF) should be taken seriously.
It should be particularly clear to the big pretenders at the top of the executive and legislative arms of government that playing populist politics in the face of an impending economic crisis we have invited upon ourselves is a recipe for disaster.
It cannot be oblivious to anyone in government that our current predicament is the result of successive years of Jubilee government’s binge of borrowing and spending that was done with parliamentary approval.
While it is acceptable that borrowing for development is inevitable, there reaches a point where we have to pause for breath or alternatively face the grim reality of paying up.
Over the past few years, as spending partly fueled by high appetite for kickbacks and a surging wage bill piled on, several international institutions warned us that we were treading on dangerous ground.
In response, the Treasury would ritually commit to cut the deficits and indeed engage in the so-called ‘fiscal consolidation’ that in simple language means slowing down spending.
That never happened as the Finance chief Henry Rotich, with clear connivance of Parliament, which has sweeping powers over the budgeting process since the 2011 constitution, has kept rolling out ever-bloated expenditure plans.
To say the chickens have come home to roost would be an understatement. Kenya now faces a debt of Sh5 trillion owed to foreign and local debtors and is still seeking more, with debt servicing now eating up 35 per cent of the budget.
More worrying is the IMF threat to cut the country loose for failure to meet the stand-by loan conditions—basically impose the 16 per cent VAT on fuel and scrap interest controls. Parliament, which allowed the Treasury to go haywire while also inflating own pay, has opposed both measures for populist reasons.
However, as Moody’s warns, the result of failing to meet the conditions will be escalated borrowing cost, especially external, as well as budget deficits.
That is a coded way of saying potential default and sovereign downgrade. The IMF facility expires tomorrow, meaning the shilling will on top be shorn of IMF insurance.
We made our bed. Let’s lie on it, by agreeing to IMF medicine, without trying to hoodwink the public.