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Urgency to tackle public debt takes centre stage in Uhuru succession

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Debt burden concept. FILE PHOTO | NMG

The leading contenders to succeed President Uhuru Kenyatta are racing to mobilise voters as the August 9 presidential election looms. And as the campaigns hot up, two of the key issues that aspirants keep sharply focusing on are how to revive the economy following the Covid storms, and more importantly how to urgently address the mounting debt cisis.

Deputy President William Ruto and ODM party leader Raila Odinga are the leading hopefuls to succeed President Uhuru Kenyatta, who will leave office at the end of his constitutional two terms. Mr Kenyatta has embarked on an aggressive campaign for the veteran opposition leader Mr Odinga against his deputy, Dr Ruto.

Analysts say the shift to a campaign based on issues such as economy and debt is refreshing.

President Kenyatta’s administration has relied on loans to build roads, bridges, power plants and the standard gauge railway (SGR) since he took office over nine years ago.

This has ballooned public debt from Sh1.89 trillion the Jubilee administration inherited from retired President Mwai Kibaki, to a projected Sh8.59 trillion by end of this fiscal year in June.

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Standard Gauge Railway (SGR) Passenger Train Make its way to the Miritini Station in Mombasa in this photo taken on 14th October 2021. PHOTO | KEVIN ODIT | NMG

This means Mr Kenyatta’s government will have borrowed at least Sh6.7 trillion by the time he leaves office.

The Covid-19 pandemic battered Kenya’s tax revenue collection at a time when more of its debts were falling due. This has turned the focus to the debt repayment burden and its effect on an economy trying to find its footing after Covid disruptions.

While voters are expected to judge both Mr Ruto’s and Mr Odinga’s economic credentials, and how they plan to improve job creation and boost incomes for the masses, the two rivals have also focused their campaign pitch on resolving the debt distress that Kenya faces.

“Debt has never been a conversation in our elections and this is the first time,” Economist Tony Watima told Business Daily acknowledging the shift in electoral campaigns this year.

Mr Watima said the emergence of debt as a campaign issue portends a welcome shift for Kenya’s highly ethnicised politics to an issue-based campaign.

He however said candidates need to go ahead and provide workable details and solutions on how to resolve the debt crisis.

The Deputy President says he will scale back spending on mega roads, rail and energy projects, that fuelled Kenya’s debt binge in recent years, and pump more money into small business if he wins this year’s election.

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Deputy President Dr William Ruto addressing a public rally at historic Jacaranda grounds in Nairobi on Sunday, January 16, 2022. PHOTO | DENNIS ONSONGO | NMG

The key plank of Dr. Ruto’s campaigns is the so-called bottom-up economic model, one of whose plans is creation of a Sh200 billion fund for small businesses to expand their production in industries ranging from housing and food processing to manufacturing.

"Debt must be the last resort. We must not be slaves of debt from any place or any country," said Mr Ruto recently.

ODM party leader Raila Odinga on his part says he will target improved debt repayment terms, saying existing obligations of over Sh1.15 trillion for the current financial year may force the country to seek help from the International Monetary Fund (IMF).

The growing debt “puts Kenya in the group of the most debt-distressed middle and lower-income developing countries now being forced into IMF credit and IMF-supervised austerity programmes,” Mr Odinga said at Chatham House in London last week during his UK tour.

If he wins, Mr Odinga said he will “seek the indulgence and cooperation of our development partners to renegotiate our debt.”

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ODM leader Raila Odinga addresses mourners at a funeral in Nyakach, Kisumu County on December 11, 2022. PHOTO | TONY OMONDI | NMG

For new loans, his government will strive to borrow at “favourable rates, negotiate repayment periods that are not stressful, and invest in enterprises that give good socio-economic returns.”

The accumulation of Chinese debt has caused anxiety among analysts and activists in recent years as the loans increased to hundreds of billions of shillings in just a few years while its repayment terms are not made public.

The most notable project funded by the Chinese is the standard gauge railway (SGR), whose commercial viability has been the subject of intense scrutiny.

But for nearly four years now, Kenya has abandoned expensive commercial debt to cut back on ballooning repayments while the Covid-19 pandemic squeezed revenue collection.

As part of that strategy, it has secured hundreds of billions from the IMF and World Bank, a key plank being direct lending for the budget to top up the public purse for items like paying civil servants salaries.

Under the administration of former President Mwai Kibaki, Kenya kept away from this type of credit, with most of the help from institutions like the IMF and the World Bank coming in form of project support.

The shift followed a deteriorating cash flow situation, marked by falling revenues, worsening debt service obligations, and the effects of the Covid-19 pandemic.

The World Bank loans are now more than all of Kenya’s bilateral debt, which stands at Sh1.09 trillion from countries like China, Belgium, the US, France, Japan, Germany, Austria, Spain, Italy, Finland and Denmark.

This has offered the World Bank and IMF influence on Kenya’s economic policy planning. For instance the global lenders have directed Kenya to implement tough conditions across many sectors, including a freeze in civil servants' pay and the imposition of new taxes.

Typically, World Bank loans have zero or very low-interest rates and have repayment periods of 25 to 40 years, with a five- or 10-year grace period.

Currently Kenya’s total debt stands at 70 percent of gross domestic product (GDP), up from about 45 percent when he took over — a surge that some politicians and economists say is saddling future generations with too much debt.

The government has defended the increased borrowing, saying the country must invest in its infrastructure, including roads and railways.

The shifting lending trends emerged as China signalled a reduction in loans to Kenya and other African countries in coming years after it cut financial commitment to projects in the continent by as much as by a third in the next three years.

In December, President Xi Jinping at the Forum on China-Africa Cooperation (FOCAC), pledged to invest $40 billion (Sh4.54 trillion) in African countries for three years. That represents a 33.33 percent drop from the $60 billion (Sh6.81 trillion) the world’s second-largest economy has committed to African countries in the last two FOCAC summits, which take place every three years.

Lower funding to Africa, research economists say, could be a pointer that Beijing is starting to see signs of reduced benefits from the cash it commits to the continent.

China’s influence on Kenya’s mega projects development started gathering steam with the construction of the Thika Superhighway between January 2009 and November 2012 for nearly Sh32 billion in the last term of President Kibaki.

China Road and Bridge Corporation, a subsidiary of China Communications Construction Company, has since bagged the lion’s share of Kenya’s mega projects — at least two railways, two ports and road projects.

The plan to cut cash flows — which largely come in form of credit lines, investment and trade finance — follows a rising indebtedness by African countries, worsened by economic fallout emerging from the pandemic.

Countries such as Zambia have struggled to service external debt in recent years and became the first one to default on Eurobond while Ethiopia’s risk of default has heightened on the back of unfolding civil war which has dimmed economic prospects.

Kenya, on the other hand, was forced to drop a bid to extend debt relief with Beijing beyond June after Chinese lenders, especially Exim Bank, opposed the deal reached by the world’s richest countries under the Debt Service Suspension Initiative framework.

This followed a standoff that had seen Chinese financiers delay disbursements, resulting in a cash crunch for Chinese-funded projects in June.

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