Kenya will sink deeper in China’s swamp of debt after it agreed to a Chinese loan of Sh61 billion to bridge the budget deficit.
This will not just add to Kenya’s debt levels, but will burden more the unborn Kenyans likely to repay the Chinese debt.
Figures from the Treasury show that the moment a baby is born in Kenya they already owe China Sh7,000. To add salt to injury they are more likely to pay Sh28,000 in interest.
Speaking to Reuters, National Treasury Principal Secretary Kamau Thuge said Kenya would soon receive the loan from China as it targets to slash the budget deficit to 6.9 per cent of GDP in the 2016/2017 fiscal year from the 8.1 per cent of GDP in the 2015/206 fiscal year.
Budget deficit occurs when government spending exceeds revenue. When Treasury Cabinet Secretary Henry Rotich read the budget statement last year, government expenditures had exceeded expected revenues by Sh570.2 billion (8.7 per cent of GDP).
The Sh570.2 overall fiscal deficit would be plugged in two ways, according to Mr Rotich: An external financing of Sh340.5 billion and domestic financing of Sh229.7 billion.
However, the government’s plans to “contain overall fiscal deficit” by emphasising “efficiency and effectiveness in public spending” even as revenue performance was improved seems to have hit a snag.
The effect has been the government gobbling up loans from Eurobond to bilateral loans from China to finance its ever-expanding deficit. “We are in the process now of finalising the financing agreement. We expect very shortly the funds will be coming in,” Thuge was quoted by Reuters.
While the loan will certainly go a long way in helping the government plug the yawning budget deficit, it also risks pushing debt levels to unsustainable levels.
Kenya Revenue Authority continues to miss revenue collection targets. Last month, the taxman warned that it would miss Treasury’s revenue collection targets after realising Sh687 billion with just four months to the end of the fiscal year 2015/2016. The Treasury had targeted a total revenue collection of Sh1.2 trillion for the fiscal year ending June, 2016.
But now the Chinese are willing to extend a helping hand to Kenya by advancing Sh61 billion loan to bridge the deficit.
This comes a few weeks after the World Bank in a policy paper warned that Chinese loans were pushing Kenya’s debt into unsustainable levels. These loans, said the Bretton Woods institution, are not tied to governance hence are likely to hurt the country in the long term.
And that is not all. China, which some observers have praised for its hands-off approach when dealing with African countries, is illogically earning Sh4 for every Sh5 Kenya pays back.
China is currently Kenya’s biggest bilateral lender. Debt grew at an alarmingly fast rate, averaging an annual growth rate of 54 per cent between 2010 and 2014. As of 2014, debt from China stood at Sh84 billion up from Sh15 billion in 2010.
The largest beneficiaries of the Chinese loans are the Ministry of Energy and Petroleum which received Sh12.6 billion, Transport and Infrastructure (Sh5.6 billion) and Information and Technology, Sh2.5 billion.
And in line with their long-held policy of political interference, the Ministry of Devolution was the lowest beneficiary.
China’s loan is abnormally higher when you factor in the Sh327 billion the country got from the Asian Pacific country for the construction of the standard gauge railway.
Chinese loans often cater for the massive infrastructural projects being undertaken by Chinese contractors. Prominent of these projects include Sh327 billion Standard Gauge Railway project.
The International Monetary Fund (IMF) agrees that funding infrastructure, even using loans as Kenya has been doing, will contribute to sustainable growth in the long-run. However, the Fund is concerned by the “recent pace of public debt accumulation.”
