What it would take you to repay Sh5 trillion Kenya owes

Journalists take pictures inside the railway tunnel at Ngong Kajiado County on 25th September 2018.

Can you imagine working for eight months without pay? Well, that is exactly how long it would take all the 45 million Kenyans to toil to settle the country’s debt.

This is according to a damning analysis by Institute of Economic Affairs (IEA) Kenya released yesterday. The debt situation does not include the latest to be signed by President Uhuru Kenyatta today in China.

It is even disturbing if you remove the over 25 million economically inactive Kenyans, including children and senior citizens, from the equation.

It will take nearly two years’ worth of work - from salaried workers, their employers and millions of small-scale traders and peasant farmers - to repay the Sh5.39 trillion Kenya owes – much of which has been accumulated since President Uhuru Kenyatta took power in 2013.

This would mean every Kenyan owes Sh120,000 to different institutions that have loaned the government. This is against an average annual income of Sh180, 839 (measured by the Gross Domestic Product per person), meaning the debt is a whole two-thirds of an individual’s productivity.

GDP, the cumulative value of all goods and services produced, is the widely accepted measure of the size of an economy

Productivity of Kenya per year is estimated at Sh8 trillion, working out to Sh180,839 per person (per capita). Productivity measures the value of goods and services produced. Kenya’s debt is Sh5.4 trillion or Sh120,000 per person per year.

A Kenyan, on average, produces goods and services worth Sh180,839 for the whole year. If they ever needed to settle the debt all in one year, without spending on anything else, the productivity equal to eight months will be required to repay the debts.

The per capita debt will further grow with the country’s leadership, currently in China, expected to sign another loan deal with the Chinese EXIM Bank for the last leg of the SGR expected to cost Sh370b.

“There are several ways of looking at the debt. One of these is from a per capita perspective. In our case, we can see the per capita debt inching closer to the per capita income,” said Noah Wamalwa of IEA, Kenya.

Wamalwa’s argument is that on average, productivity is almost equalling the debt per person.

IEA says despite the high levels of indebtedness, the government has lately developed taste for short-term and more costly loans, piling pressure on the little revenues collected from taxes.

In the local market, the State is increasingly borrowing more using the short term Treasury Bills as opposed to the longer term Bonds that also tend to attract lower interest rates.

In its debt management strategy, the Treasury hoped to borrow 80 per cent locally through Treasury Bonds and 20 per cent through Treasury Bills, but surpassed the threshold. Treasury Bonds currently account for 60 per cent of locally borrowed funds while Treasury Bills 38 per cent.

In the external markets, the Government has been borrowing more from commercial banks as opposed to multilateral lenders such as the World Bank and the African Development Bank, which according to IEA offer better terms.

IEA’s analysis shows the proportion of external debt from the cheap and friendlier multilateral lenders has come down from 63 per cent in 2013 to 34 per cent as of June 2018. Borrowing from commercial lenders such as banks as well as tools such as the Eurobond now accounts for 34 per cent of total debt from a low of 7 per cent in 2013.

“If the Government continues with this trend, chances are high that in another 5 to 10 years, Kenya might default on some of its repayment obligations,” said John Mutua, a programme officer at IEA.

He said the country’s revenue collections are almost plateauing bringing about an urgent need to increase economic activity for KRA to increases collection.