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Treasury borrows Sh32bn for arms

Henry Rotich
Treasury secretary Henry Rotich. FILE PHOTO | NMG 

Kenya borrowed more than Sh30 billion to buy weapons which contributed to a Sh270 billion build-up in the country’s foreign debt load in the four months to February.

A fresh report tabled in Parliament last week shows the additional loans were spent on purchase of military jets, expansion of the naval base, building of a second international runway as well as purchase of CT scans for the country’s health sector.

The new loans have pushed up Kenya’s total external debt to Sh2.52 trillion.

Kenya’s public debt recently crossed the Sh5 trillion mark for the first time, pointing to a looming increase in debt servicing obligations, including interest and principal repayments.

The ultimate impact of the borrowing binge is an increase in recurrent expenditure and a squeeze on development spending.

The Jubilee government has many times defended signing of new loans, saying they were for financing economically productive infrastructure projects.

Weapons could act as an important deterrent from foreign aggression which guarantees long-term economic growth, but they do not directly contribute to increased tax collections needed for repaying the expensive debts.

The Treasury says it signed a Sh203.2 billion international sovereign bond and nine new loans worth Sh67.4 billion between November 1, 2017 and February 28, 2018.

Treasury data submitted to Parliament shows that proceeds of the Sh203.2 billion international sovereign bond has been received by Kenya. “Disbursements from the loans are expected over the medium term. None of the loans have been disbursed; however the international sovereign bond is fully disbursed. This brings the total external debt disbursed to Sh2,524,530,791,430,” Henry Rotich, the Treasury secretary, says in a report to Parliament detailing all new loans contracted by the government of Kenya.

Topping the list of the nine loans is the purchase of a C-27J Spartan military aircraft at a whopping Sh20 billion ($198,448,276). The C-27J Spartan is manufactured in Italy. The Kenyan government signed the loan with Unitcredit Spa Bank on December 11, 2017 and it matures on June 11, 2029.

On the same day, the Treasury borrowed a further Sh6 billion (euro 51,854,681) from Unitcredit Spa Bank to purchase an undisclosed number of helicopters (AW 139 helicopters). The two (C-27J Spartan aircraft and helicopters) loans will be repaid starting June 11, 2019.

The country also took in two separate loans on the same day worth Sh5.4 billion (euro 45,917,680) and Sh1 billion (euro 8,783,120) for commissioning of Damen 4000 tonne Slipway at the Kenya Navy Naval Base in Mtongwe, Mombasa.

The deal for the loans from ING Bank was sealed on December 4,2017 with a maturity date of June 2030. “The loan was advanced to help improve security surveillance along the Kenyan coast.”

The country also incurred a debt of Sh16 billion ($160 million) that the government borrowed from African Development Bank to construct a second runway at the Jomo Kenyatta International Airport (JKIA). The loan was inked on January 1, 2018 and matures on February, 2026.

“The loans perceived benefit is improved movement to enable Kenya meet growing demand of goods and spur economic growth,” Mr Rotich said. The Treasury signed another loan of Sh6.8 billion ($67.3 million) from China Development Bank for procurement of the controversial CT scans for 37 public hospitals. The deal was inked on December 11, 2017 and matures in October 2022.

Kenya contracted a Sh9.6 billion ($94,697,000) loan from Korea’s Export Development Cooperation Fund that is earmarked for establishment of Kenya Advanced Institute of Science Technology. The loan will be repaid in 60 equal instalments of $1.57 million starting August 20, 2017.

The Treasury also signed a Sh748 million ($6.4 million) for supply of medical equipment across the country and Sh584.5 million ($5 million) to upgrade the maternal and newborn care unit at Kapenguria District Hospital.

Mr Rotich is required under section 31(1) (3) of the Public Finance Management Act, 2012 to report to Parliament on a quarterly basis any new loans contracted by the government.

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