Raising debt ceiling a sign of more pain

What I found most striking in the controversial Bill seeking to raise the public debt ceiling to Sh9 trillion is the doggedness and intense lobbying that the government applied while pushing its case for raising the ceiling through both the National Assembly and the Senate.

It was as if raising the debt ceiling to Sh9 trillion had become a life and death matter.

Such was the intensity of lobbying and whipping that a good number of Senators who had initially showed an inclination to opposing the Bill changed their minds on the decisive moment, choosing to stay away from the vote altogether.

Clearly, those who had opposed the Bill earlier were avoiding the risk of breaking ranks with the powerful political backers of the contentious Bill.

Where was the sense of urgency and anxiety from? What is the real motivation behind the decision by the administration to raise the debt ceiling? Two factors were at play.

First is the issue of compliance. On crunching numbers, it had suddenly dawned on the new leadership at the National Treasury that they had broken the law. They had long broken the old ceilings. Under the circumstances, dealing with new lenders was going to be an impossibility in terms of disclosure and transparency. Having plunged into the Eurobond market and into the international capital markets space, the demands for disclosure and transparency on its finances and operations were now much higher.

Which brings me to the second possible motive behind the urgency with which the government is treating the public debt ceiling issue. I think that powerful and well-connected European, American and Chinese contractors are putting pressure behind the scenes on the government to raise the ceiling to Sh9 trillion so that some of the projects they have been negotiating with the government can be accommodated in the budget.

Away from the public limelight, many State departments have signed MoUs and commercial contracts with vendors and contractors.

What has been delaying things is the belated realisation by the National Treasury that the government had long broken the legal ceilings on public debt and therefore could not accommodate more loans.

Despite the fact that commercial contracts have been signed by ministries and State agencies, the National Treasury had of late been turning away projects.

The case of giant US contractor Bechtel Corporation is a good example in this regard. More than two years ago, Bechtel Corporation signed a commercial agreement with the Kenya National Highways Authority to construct the country’s first high-speed expressway between Mombasa and Nairobi at a cost of U$3 billion.

And, where was the money to come from? Mainly through borrowings guaranteed by US export credit agencies- OPIC and the US Exim Bank.

Because the loans on offer are the types called government- to-government deals, we often make the mistake of assuming that the money is coming from some philanthropic donor. Yet the truth of the matter was that the financing model was going to saddle the balance sheet of the government with a huge commitment.

Another interesting example is the Sh60 billion Nairobi Expressway project. Because it is modelled as a PPP project, and since China Road and Bridges is bearing the full risk, the sponsors of the project have said that it will not have implications on the government’s liabilities.

They should tell that to the birds. In the first place, the government is going to spend a whopping Sh4.2 billion in land acquisitions and another Sh3.8 billion in the so called restorations. We will incur more billions on tax waivers that- we are told- have to be granted to the Chinese contractor to recoup its investments, to allow the project to charge affordable tariffs and to improve on the project’s bankability.

The truth of the matter is that all PPP projects are ultimately contingent liabilities on the balance sheet of the government.

Can we get a public commitment that they will not borrow any of those expensive syndicated loans within this financial year?