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This is why defaulting on loans is not an option

By Otiato Guguyu | Published Tue, June 12th 2018 at 11:26, Updated June 14th 2018 at 13:38 GMT +3
Loan default application

If you cannot pay your debts, the bank will auction your property to recover its money and report you to a credit reference bureau.

It is the same with a country, only that it happens on a much bigger scale.

Earlier this year when rating agency Moodys placed our debt outlook on a watch for a downgrade, even local banks like Equity, Kenya Commercial Bank and Cooperative Bank were downgraded.

The net effect is that the country’s biggest banks get affected when they want to trade with international lenders to get money for onward lending, thus harming their financial health and that of the economy.

And while the country can borrow from Peter to pay Paul, a default would trigger a blacklisting, which means the government would not be able to be able to borrow further.

The economy would in turn grind to a halt with the most adverse effects.

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The business of losing ports and state land is unimaginable, but over the recent years, it has become commonplace, especially for distressed countries seeking to restructure their loans from the commercial creditors.

Greece was forced into a bailout programme that included 19 privatisations, including 67 per cent of the share capital of the Port of Thessaloniki and five per cent of OTE (telecom company) and sale of 10 port authorities, real estate assets, the Hellenic Post and Athen’s water supply.

A Chinese state-owned company has signed a 99-year lease with Sri Lanka and taken over the Hambantota Port after the country accumulated foreign debt to 94 per cent of its GDP.

It is not unimaginable that the creditors could seize Tsavo National Park, fence it off and convert it into a private park where they can fly in and out at their pleasure and charge the locals for using a resource that is in their own country.

The Chinese already virtually run the Standard Gauge Railway, including ticket sales, giving them an upper hand should the country default on its loans.

Defaulting on our loans could also see our most lucrative resource and artery to East Africa, the Mombasa Port, privatised and all revenues directed to some foreign investor. 


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