Columnists

Kenya is headed for IMF’s bitter pill

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National Treasury building. FILE PHOTO | NMG

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Summary

  • We have told the world that we will be devoting the resources freed up by this action by our bilateral creditors to increase spending on health, and on mitigating the economic and social impact of the Covid-19 crisis.
  • We have also said that we will now be approaching China, who is not a member of the Paris Club, to also suspend debt service so that comparability of treatment is achieved,
  • Without a doubt, these are positive developments for cash-strapped Kenya. But it is important to put this debt service waiver by the Paris Club in a broad context.
  • Our external debt register is literally littered with expensive Chinese loans, some of which have been borrowed for projects of doubtful economic viability.

On Monday, the Paris Club of international creditors said it had accepted a request from Kenya for a debt-servicing suspension from January to the end of June.

We have told the world that we will be devoting the resources freed up by this action by our bilateral creditors to increase spending on health, and on mitigating the economic and social impact of the Covid-19 crisis.

We have also said that we will now be approaching China, who is not a member of the Paris Club, to also suspend debt service so that comparability of treatment is achieved,

Without a doubt, these are positive developments for cash-strapped Kenya. But it is important to put this debt service waiver by the Paris Club in a broad context.

The fact of the matter is that until we are able to cut a deal with China, the needle will not have moved in any major way.

The biggest Chinese loans on our external debt register are the various facilities we took up for the standard gauge railway.

The first is a $ 1.6 billion loan borrowed from China Exim Bank for the Mombasa to Nairobi section. This specific loan is repayable annually, commencing July 21, 2021 and ending on January 21 2034.

The second is the $2 billion loan also from China Exim Bank that is repayable in semi-annual installments commencing July 21, 2019 and ending January 21, 2029.

The third is $ 1.4 billion borrowed for the Nairobi to Mombasa section of the standard gauge railway and repayable in 30 instalments from July 2021 to July 21, 2035.

We have borrowed recklessly from China. Apart from the massive standard gauge railway loans, another significant Chinese loan on our register is a massive $600 million borrowed from China Development Bank.

This huge facility is repayable in semi-annual instalments commencing 2 November 20, 2019 to May 2, 2023.

Indeed, our external debt register is literally littered with expensive Chinese loans, some of which have been borrowed for projects of doubtful economic viability.

For in stance, I see disclosed in the external register that we took a huge $69 million loan from China to procure equipment for the National Youth Service. We borrowed another $328 million facility to buy ‘drilling materials’ from China.

Today, you will find that —in terms of amounts of debt service obligations outstanding at any one point in time — what we owe China will be much more than what we owe multilateral banks such as the World Bank and the African Development Fund or even international bond holders. What is my point? It is that in the current circumstances, any debt forgiveness programme for Kenya that leaves out China will never make an impact.

With the Paris Club deal done, the next big thing for us is the IMF bailout deal that is already in the works. How events unfold remains to be seen. But what is clear is that the engagement with the IMF is bound to come with a new regime that may require the government to implement tough conditions across many sectors.

I see the IMF demanding an independent and comprehensive audit of the external debt register. I see the IMF demanding a realistic and fully funded budget. We have had major credibility issues with our budget numbers.

It starts with the minister setting unrealistic and overoptimistic GDP targets. This leads the government into setting unrealistic revenue collection targets — unrealistic budget deficit and domestic borrowing targets — and, finally, unrealistic revenue collection targets to the Kenya Revenue Authority.

The stage is then set for frequent recurrence of large unbudgeted expenditures, persistent pending bills and huge disparities between what has been approved by Parliament and actual Exchequer releases

With revenue collection on a decline, a burgeoning wage bill and high debt service costs we are surely headed for the IMF’s bitter pill.