Solving the debt crisis in Kenya


The government spent Sh300.1 billion on domestic interest charges in the six months to December. FILE PHOTO 

Never in the history of Kenya has there been a more heated debate on the economy than it is today. This is irrespective of where one is—in a vehicle travelling, a boardroom, church, classroom or dinner.

Among the key discussions is the Kenyan debt and its effects on the cost of living. This is mainly for two reasons—first, during the 2022 presidential campaign Dr William Ruto highlighted it, especially in his supposed debt policy. Secondly, the goodies he promised remain a mirage as the Kenyan debt situation remains a scapegoat. But do Kenyans have the facts about the status of the Kenyan debt?

In its story on December 4, 2023, Daily Nation, maybe from their source of information, published misleading facts regarding the Kenyan public debt. The in-depth research done by Linda Jamii, the umbrella body for all civil societies, community-based and religious organisations and private sectors reveals that inasmuch as Daily Nation was correct to report that Mwai Kibaki left the debt at Sh1.79 trillion, it was grossly misleading to report that Mr Kenyatta left it at Sh8.7 trillion and that it now stands at Sh10.58 trillion under Dr Ruto. According to the Appropriation Act, Kenyan official debt stands at 2.1 trillion, the Treasury website puts it at Sh6.2 trillion while the State House believes it stands at Sh10.58 trillion.

This major and glaring disparity cannot be taken as a typing error. If it is true that Kenyan debt is more than Sh2.1 trillion, then it can only mean though all public debt must comply with the Appropriation Act, a big proportion of the Kenyan debt contravenes this provision. In other words, whatever is beyond Sh2.1 trillion is an illegal debt. Linda Jamii has taken the Treasury to court concerning this and we now await legal determination.

As we wait it is critical to correct other misleading narratives, which Kenyans are being fed. For instance, Deputy President Rigathi Gachagua recently said the cost of living is high since Kenya spends 75 percent of its revenue collected on debt repayment. This is not true. Moreover, the President and most Kenya Kwanza State officers have shouted that Kenyans are suffering because of the debt borrowed by Uhuru.

This is not true either. Yes, President Kenyatta indeed borrowed. Data from the Treasury reveals that he borrowed Sh437 billion in his first year. But nobody can deny that during Mr Kenyatta’s presidency, there were so many major infrastructure projects such as the Nairobi Expressway and standard gauge railway, among others, that needed all that money he collected and borrowed. President Ruto, on the other hand, has collected more than Sh3.285 trillion since he took office a year ago and has borrowed more than Sh1.5 trillion. This makes his total money basket to be Sh4.785 trillion yet besides salary delays, there is no major infrastructure project ongoing, no subsidies.

Focusing on their first years in the presidency, President Ruto’s borrowing has surpassed that of President Kenyatta’s, making Dr Ruto the king of borrowing. Whereas Uhuru used to pay about Sh61.4 billion weekly to offset the debt and still keep the taxes low and provide subsidies such as fuel, Dr Ruto pays less (about Sh3 billion weekly), has removed subsidies and is overtaxing Kenyans.

The narrative that Kenyans are being overtaxed due to overborrowing done by President Uhuru is therefore misleading.

More worrying is the fact that between September 2022 and April 2023, the President borrowed Sh419.46 billion from the domestic market alone, competing with Kenyan entrepreneurs for credit in a high-inflation environment. This made the interbank lending rate go from seven percent to 11 percent, starving money circulation, making the business environment difficult for the entrepreneurs and leading to job losses.

The dollar, which was exchanged at Sh120.42 when Dr Ruto took over climbed up to Sh157 and is now cruising towards Sh200. Consumer price index, which was at 128.31 in November 2022 is now at 137.03 points. The following maths is telling:

High inflation + High Central Bank rates + Overtaxation + High Unemployment + Depreciating Shilling + High Government Expenditure = No cash for business + No cash for consumption + Low Purchasing Power + Slow Economic growth.

Does it need rocket science to realise this?

Back to the debt. What should be done? Certainly, we need foreign direct investment and this can be achieved by creating a conducive domestic environment. Unfortunately, President Ruto, who is spending more of his energy on international popularity, has no time to address the domestic issues and sometimes talks as if he is not aware of what is the true economic situation in Kenya.

This is because his foreign, fiscal and defence policies are creating serious domestic instability, which is choking the economy. President Ruto should focus more on domestic issues to attract foreign direct investment.

We need to manage public debt responsibly by cutting down government expenditure and strengthening the Kenyan shilling. Let’s not forget that any time Kenya shilling loses one value, we add Sh40 billion to our debt book.

To cure our debt, let’s pray that the over-ceiling debt is declared illegal.

This will necessitate restructuring of the debt. It will then be Solomonic that we move from taking conditional loans that make the citizens’ life difficult to taking precautionary loans, which will help us grow assets that will generate national revenue and investments.

Dr Ogola is the CEO at African Health and Economic Institute and Director of the Institute of Strategy and Competitiveness. 

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