The government has time and again brushed off concerns that the level of borrowing is getting out of hand.
Last week, the International Monetary Fund (IMF) revealed that Kenya had exhausted its $1.5 billion (Sh150 billion) precautionary facility even as the government was in the US for the roadshow sourcing bids for the second Eurobond which was oversubscribed.
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“The Government has planned infrastructure projects such as roads, rails and energy infrastructure,” said Deputy President William Ruto last week during a political rally in Central Kenya. “Any borrowing is measured and we know that we have the capacity to pay and is in the interest of the country.”
Mr Ruto’s defence of the government’s borrowing is however misstated.
The IMF last week appearing before parliament’s budget and appropriations committee explained to members of parliament the country’s current debt predicament.
“The debt levels we see are still manageable at the moment,” said IMF representative to Kenya Jan Mikkelsen. What we are concerned about is the flow of new debt. The trajectory is going to a place where it will not be sustainable anymore and you will get in trouble eventually.
In the first place, Kenya’s debt raises concern because the government has been unable to account for the proceeds of previous instruments.
The Kenyan taxpayers are yet to see proceeds of the Sh201 billion Eurobond issued in 2014 even as the initial tranche of Sh75 billion is due for repayment in the next four months.
The World Bank and IMF have several times in the past cited Kenya for having lax fiscal discipline in properly managing the debt that is underwritten in the name of taxpayers.
Last year, the US aid office cancelled a multi-billion disbursement targeted for HIV/AIDS funding because of corruption at the ministry of health where it was revealed that more than Sh5billion had been paid out in dubious tenders and payments. Rating agency Moody’s last week downgraded Kenya’s credit rating for both local and foreign debt.
The effect of this is to raise Kenya’s risk profile significantly raising the interest payments on foreign denominated debt such as the recently floated bond.
At the moment, the Government is hard pressed to meet revenue shortfalls with the wage bill having grown by close to four times in the past five years partly due to devolution.
This means Kenyan taxpayers will in the not-too-distant future face the possibility of tax hikes to raise enough revenues to meet the fiscal deficit and foot the high-interest bills.