Why defaulting on debts could save Kenya, Jimi Wanjigi explains

Businessman Jimi Wanjigi during an interview on Spice FM on Tuesday, May 16. [The Standard]

Businessman Jimi Wanjigi argues that Kenya should default on loans, saying it is the only viable solution to grow the economy.

According to Wanjigi, the government has exhausted all its options, and increasing taxes only prolongs Kenyans' suffering.

As of September 2022, the Central Bank of Kenya noted Kenya’s debt was at Sh8.7 trillion.

“We look at defaulting as a bad thing, yes it is but what the country will get from defaulting is a breathing space which the country needs. We have Sh1.7 trillion in debts and a cumulative interest of Sh719 billion to be paid."

“If we agree to default and that money is removed from expenditure, Kenyans will experience relief,” said Wanjigi during an interview on Spice FM on Tuesday, May 16. 

When a country defaults on paying taxes, it is cut off from future access to credit from international bond markets.

Additionally, the reputation of the State among creditors is damaged, which can restrict the ability of the state to obtain credit from the capital markets.

As bad as that sounds, Wanjigi says that by negotiating terms with the International Monetary Fund (IMF), the government will be able to save the economy.

“We can forcibly negotiate our debts like Ghana did. Show those that we owe a plan on how we can grow our economy, and ask them to give us time. If that money is invested in production, then we might be able to save our economy in three years,” he added.

Defaulting debt often leads to an increase in inflation and a drop in currency.  However, according to Wanjigi, Kenyans will have to endure that for some months.

Wanjigi believes that the lack of debts will lead to a lowering of taxes and also the government will turn to local borrowing which will in turn lower interest rates in the country.

In January, President William Ruto said that Kenya will not default on any of its debts and is planning to grow its economy through the collection of taxes.

However, Wanjigi says that Kenya has reached its threshold when it comes to taxation, and with the current economic state, it will be difficult to collect even half of what is anticipated.