Finance Cabinet Secretary Henry Rotich should be candid about the debt hole we have dug ourselves into over the past 15 years. It is easy to explain away concerns that Kenya could not settle the two-year syndicated loan due last month as a liquidity management tactic and not because Treasury needed to restructure the country’s debt portfolio.
Mr Rotich says he will get cheaper money in terms of rate on offer and tenure to settle the short-term obligation that was expensive to our debt books.
What he is not saying is that the global financial market is no longer offering cheap financing as was the case in 2014, especially with the rise of US Federal Reserve rates and UK Libor rates in the past few weeks.
Two, the ministry has piled up three syndicated loans in just three years, mostly expensive short-term debt, an indication that Treasury has been imprudent in managing the country’s finances.
These commercial loans coincide with the settlement of part of the principal amount of the Eurobond, and part payment of the Standard Gauge Railway debt. To make matters worse, the International Monetary Fund (IMF) will soon be reviewing a Sh150 billion precautionary facility it extended to the country. If they were to lift it, the shilling will face significant volatility threats which could balloon our debt towards a tipping point.
When Kenya borrowed the Sh215 billion Eurobond in 2014, the shilling was exchanging at a rate of Sh87 against the dollar. We are now repaying the loan at Sh103, which means that for every dollar we borrowed, we need an extra Sh16 to pay before we even cover interest.
Lest we forget; Ghana’s current debt crisis is mainly as a consequence of the fall of the cedi. It is therefore not rocket science to anticipate this risk on the shilling.
Finally the Gross Development Product growth has slowed to five per cent this year which means that debt will grow at a faster rate than the economy and the Kenya Revenue Authority’s ability to collect more taxes.
If the government does not collect enough taxes, it will be forced to borrow more, to fund recurrent expenditure, mostly salaries, pension and debt repayment.
And while austerity measures on office hospitality and travel is a step in the right direction, the savings from that are a drop in the ocean. The Government will eventually spend less on development, thus choking economic growth and creating the very problem it sought to cure through the massive borrowing.