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Could Kenya be borrowing too much to fund mega projects?

COMMENTARY
By Henry Munene | October 17th 2015

NAIROBI: One of the greatest coups Kenya has pulled off is increasing annual tax collection to more than a trillion shillings in a year. The vision behind this, the Kibaki regime told us, was to end dependency on foreign aid. Indeed, the mantra became fashionable that Kulipa ushuru ni kujitegemea (paying taxes is the key to independence). It becomes more pleasant when one considers that we were coming from an era when our national budget always factored a chunk which we expected the so-called development partners to fund. Until it became clear that most donor agencies and countries tied stringent conditions to their aid. To advance that campaign towards freedom, the Jubilee government even paid Anglo-Leasing ‘ghost’ companies, amid protests from the Opposition. The Government was keen to borrow from the international markets through sovereign bonds.

One expected that borrowing through sovereign bonds, and with the introduction of the Kenya Banks’ Reference Rate, commercial banks would no longer focus on lending to the State. It was expected the State would have enough cash for its recurrent and development agenda and the banks would have to beg Njoroge at Muthurwa market to take a loan, even when they know Njoroge might switch off his phone when it is time to pay back. It is a brilliant way of making banks lower their rates and ipso facto fund economic growth. In fact, the reason we saw banks even begging civil servants to take huge loans in the last decade was that the Government had shifted from the short-term 91-day and 182-day Treasury bonds and banks had to direct their lending efforts elsewhere.

But the rosy world where you could get a loan easily to start or expand your business — or to just kick off your shoes at the local and become an overnight billionaire — seems to be crumbling. First came the strengthening of the US economy, which has seen the US dollar ride roughshod over most world currencies. It is in an attempt to arrest further sliding of the shilling that Central Bank decided to raise the base lending rate. This move, however, made banks to revise their lending rates upwards, making the cost of capital for business expansion to shoot through the roof. Indeed, it is on this basis that the World Bank this week revised downwards its earlier forecast that the economy would be whistling at a cool six per cent growth rate.

So where is the problem? Well, I am not an economist, so I will go back to good old common sense and my observation as someone who monitors happenings in the country through the many news reports that are filed by professional journalists across the country; which I’m paid to read very keenly.

One, we have too many development projects going on. And while development is a good thing, a man earning Sh10,000 cannot start building a Sh10 million mansion, unless under the influence of certain uncooked leaves from Mbeere called Muguka. And the question I’m at this point impelled to ask is this: Could we be trying to push an unrealistic and overambitious development agenda that we can ill afford? And could this be the reason that, even after borrowing through sovereign bond and increasing tax revenue, we still have to borrow locally?

Now, my fear is two-fold. One, we should balance between development and our economic ability as a country. Secondly, with so much corruption surrounding the mega projects we are borrowing to finance, we run the risk of burdening our children with a huge debt, a good part of which ended up in ghost accounts and at some individuals’ local bar.

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