Could Kenya be borrowing too much to fund mega projects?

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.