Today's Paper

Why Uhuru’s China trip means more pain for Kenyans

By Frankline Sunday | Published Tue, September 4th 2018 at 11:51, Updated September 4th 2018 at 12:20 GMT +3
President Uhuru Kenyatta and Chinese President Xi Jinping.

In summary

  • With 16 per cent VAT on petroleum products that will see the cost of living rise, more debts including the Sh847 billion for the SGR will overburden Kenyans more

As Kenyans brace for the high cost of living from a 16 per cent tax introduced on petroleum products, President Uhuru Kenyatta is in Beijing China to undersign more debt that will erode Kenya’s efforts for fiscal consolidation fulled by the country's high borrowings.

This is the second time in as many years the President is in China after a similar trip last year that saw Kenya saddled with an additional Sh370 billion.

This saw the total money allocated to the railway hit Sh847 billion or roughly two and a half times the amount of money disbursed to the 47 counties last financial year.

The latest debt agreement will push Kenya’s Yuan debt past the trillion mark – more than twice the amount of money Kenya owes to Germany, Japan, France, US, UK, Canada, Belgium and Italy - combined.

This puts Kenya firmly in the trap of Chinese debt in the long-term in the face of a rapidly shrinking capacity to make repayments on its entire stock of external and internal public debts.

According to Treasury’s medium debt management strategy released in February this year, Kenya’s total public and publicly guaranteed debt stood at Sh4.5 trillion as at December 2017.

Out of this, Sh2.14 trillion is owed to foreign lenders and another Sh2.1 trillion to domestic lenders.

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While presenting the 2018/2019 Budget in June, Treasury Cabinet Secretary Henry Rotich said the Government would introduce tax policy measures as part of attempts to boost revenue collection that had fallen behind target owing to last year’s economic slump linked to the general elections.

“In order to recoup the revenue shortfalls during the first half of the year, we agreed on a number of revenue enhancement initiatives with the Kenya Revenue Authority (KRA),” explained Henry Rotich.

“Now that the challenges we faced in the last two years are behind us, we plan to bring down the deficit progressively to ensure that our public debt remains sustainable.”

To make this possible, both Treasury and the KRA are fighting to have the 16 per cent VAT on petroleum products upheld as well as other new levies introduced on mobile money transactions, alcoholic drinks and cigarettes, imported motor vehicles and bulk cash transfers.

This cost falls squarely on the shoulders of all taxpayers irrespective of income bracket. Matatu fares are set to increase by an average of 10 – 20 per cent across the country this week, while importing a used Honda Fit that went for Sh650,000 last year today will cost you Sh850,000.

The cost of retail goods is also expected to rise as the cost of electricity, manufactured goods, processing of raw materials and transporting all that is expected to rise marginally in the coming months.

With President Uhuru signing on more Chinese debt, this scenario is expected to be the norm in coming years, especially as debt repayments mature.

Of the Sh4.4 trillion that the Government owes to the domestic and external debt markets, Sh2.4 trillion matures over the next three years and will have to be paid.

Taxpayers will thus likely have to dig deeper into their pockets in the coming months to accommodate new loans.  

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