Inside Politics

Experts warn of default as Kenya’s debt nears Sh8.4tr

Thursday, December 17th, 2020 00:00 |
National Treasury. Photo/File

Analysts have warned that Kenya could soon find itself unable to borrow anymore after it emerged that the government has reached an agreement with lenders to borrow additional Sh1.3 trillion.

This means that public debt will rise from Sh7.1 trillion to Sh8.4 trillion at a time when tax revenues have been battered by Covid-19 while dollar supply is shrinking.

Economic analyst Reginald Kadzutu says the extras include pension liabilities estimated as close to Sh1 trillion coupled with parastatal guarantees.

He said the trillions borrowed might not have the impact to stir the economy as desired while revenue collection are low, hence the debt cannot repay itself, and the country might at this point be borrowing just to keep the country running.

“The government has borrowed Sh6 trillion since they came to power, apart from Sh1 trillion Standard Gauge Railway expense, where is the Sh5 trillion? This money is not producing anything to pay back the loan, we are in a period where we can’t pay,” said Kadzutu while speaking on K24 TV morning show.

He said that with Central Bank of Kenya data showing that public debt has increased from Sh1.8 trillion in January 2013 to Sh7.1 trillion plus the expected to Sh1.3 trillion, this means the government is Sh8.4 trillion in debt.Kadzutu said the State is instead relying on tax revenue to repay the debt but tax revenues have been hit by the Covid-19 pandemic. He said the turnover tax and other measures that Kenya Revenue Authority is putting in place are but a sign of how deep the hole is.

“We need to stop borrowing at this point and only work on essentials only,” said Nairobi-based businessman and economist Robert Shaw.

Treasury has said that it secured Sh1.3 trillion more from creditors which could add to the current Sh7.1 trillion public debt.

Railway line

Part of the new loans include Sh14 billion which France has promised to help build a railway line to connect Nairobi’s Central Business District (CBD) and the airport.

It raises questions whether Kenya urgently needs the rail line given that there is already an existing line to Embakasi which is being used to access the airport.

Kenya’s local currency is also losing ground to the US dollar making the debt even more difficult to manage as banks and traders compete for the few dollars in the market. Currency dealers say the currency is trading way lower than they report to the central bank.

“You see we just borrowed funds from the International Monetary Fund (IMF) recently, that shows how desperate the situation is because IMF lends with tough conditions,” said Shaw. The IMF forced Kenya to restore taxes by end of the year as a precondition for borrowing.

Shaw said the government should seek all its credit and ask them to extend debt maturities and waive interest payments to avoid a more bumpy ride ahead. Shaw criticised the Jubilee government for imposing expensive projects such as BBI on Treasury without consulting on where the funds will come from.

Kenya’s numerous incomplete projects are seen as a major challenge since they are helping to pay back the debt used to start them.

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