Raila Odinga's 5 demands to President Uhuru over borrowing spree: Can Kenya shoulder her debt burden?

Leader of majority Aden Duale reacts to former Prime Minister Raila Odinga's sentiments on the Government's giant water projects in Kenya. Uproar and consternation greeted revelations the government borrowed more than Sh226 billion between January and July this year. (PHOTO: MOSES OMUSULA/ STANDARD)

Opposition leader Raila Odinga yesterday
made five demands to President Uhuru
Kenyatta following the recent disclosure of
his administration’s borrowing spree.
The demand came on the back of revelations that the Jubilee government had borrowed over Sh226 billion between January and July this year to finance massive infrastructure projects.

However, the sustainability of the public debt, which has hit Sh3.2 trillion, split Jubilee and CORD leaders. Ruling coalition MPs said the borrowing was justified to spur growth.Uproar and consternation greeted revelations the government borrowed more than Sh226 billion between January and July this year, adding to the country’s spiralling debt burden that is now more than Sh3.2 trillion.

Reacting to a Treasury document tabled in the National Assembly last week and published by The Standard, leaders and experts however differed over the controversial issue of the national debt sustainability, which has in the past been criticised by politicians mainly from the Opposition as devastating to the economy in the long-term.

Recent data shows the country’s total public and publicly guaranteed debt stood at Sh3.2 trillion. This is 78 per cent, or Sh1.4 trillion, more than the Sh1.8 trillion that President Uhuru Kenyatta’s regime inherited from the Grand Coalition government.

Opposition leader Raila Odinga yesterday made five demands to President Uhuru Kenyatta that include convening a National Public Debt Conference to come up with ways of controlling the ballooning public debt.

Raila challenged the President to immediately make a full disclosure on the amounts borrowed, sources of the borrowing, and repayment amounts in terms of capital and interest from January 2013 to date.

He also wants a full disclosure on the projects financed by the borrowing giving the specifics on the type of the project, location, cost and completion time.

Additionally, a re-evaluation of the government’s priorities including the infrastructural projects, both ongoing and planned, and stopping further borrowing until an evaluation of the benefits accruing out of the amounts borrowed so far.

“Jubilee is pursuing a weird and pedestrian policy where the deeper we have gotten into debt, the more we have borrowed. Increasing public borrowing has resulted in undesirable fiscal consequences such as high interest rates, inflation and overburdening future generations. The ballooning debt is not only unsustainable, it is also unconstitutional,” Raila said.

CORD co-principal and Bungoma Senator Moses Wetang’ula argued the government’s borrowing spree had seen the country’s debt level quadruple in the last three years. He revealed the Opposition would stage public resistance to any further borrowing as well as lobby international lenders to stop granting loans to the Jubilee administration.

“Part of the resistance is for the public to understand the folly of borrowing by the Jubilee administration... They fumbled when we asked them to account for the Eurobond money. It was meant for capital projects but ended up doing nothing. Eurobond was for road, water and energy projects but it went into the recurrent expenditure and to pay extravagant trips they keep making all over,” Wetang’ula claimed.

Various creditors

“They have been borrowing and borrowing without accounting for the loans,” added the Senate Minority Leader, referring to the latest disclosures from agreements between the government and various creditors, most of them Chinese banks, to finance development projects in the country.

National Assembly Majority Leader Aden Duale however explained that the country’s debt position was stable.

”The document will be scrutinised by the relevant committee, but I can assure you that all the loans borrowed by the government have gone into offering real benefits to the people of Kenya. Anyone saying anything to the contrary should provide evidence,” said Mr Duale.

“The kind of capital investments we have made are projects that will bring huge returns to the country. Again, most of the loans are on concessional terms and have a grace period of five years, which means that Kenya stands no risk of defaulting,” he added.

Treasury Cabinet Secretary Henry Rotich did not respond to our inquiries.

The new debt list includes 20 agreements among them a Sh20 billion loan taken by the government to save troubled national carrier Kenya Airways. It also includes a Sh60 billion loan to ease the cost of doing business from China Development Bank.

The county’s debt currently stands at Sh3.2 trillion, which has raised fears that Kenya might be unable to repay the loans when they are due. Some of the loans listed in the Treasury document have a maturity period of over 35 years, which means that a Kenyan child born today will pay the debt until the current President is 90.

The list of loans covers the period between January and July this year, and was made available under provisions of the Public Finance Management (PFM) Act, which compels Treasury to submit to Parliament a memorandum of all loans agreements entered by the government.

Heightened debt levels, according to critics, mean that the country uses its scarce foreign currency reserves to settle the loans, which in severe instances can result in major depreciation of the shilling.

Raila said calculations indicate that the debt ratio was at least 52.6 per cent of the GDP.

Public debt

Raila said in the past three years, the public debt had risen from Sh1.633 trillion to Sh3.239 trillion, an increase of Sh1.606 trillion or 98 per cent.

He explained while in the 2015-2016 Financial Year, the National Treasury provided Sh362 billion for debt repayment, the figure had risen to Sh433 billion in 2016-2017, an increase of Sh71 billion or 20 per cent in one year.

“At this rate, in five years, this country will be spending all the tax collected on repaying public debts with nothing left for capital and recurrent expenditures,” Raila said.

Economist David Ndii argued the country was hurtling dangerously towards a full-blown financial crisis driven by the level of borrowing witnessed in many other countries that are now in distress.

“There is nothing unusual here; it is the usual hype-mentality where leaders claim to borrow to build infrastructure - but what returns do we expect from these projects to generate foreign exchange?” Dr Ndii asked.

National Assembly Defence and Foreign Relations Committee Chairman Ndungu Gethenji countered: “Money is not borrowed in a vacuum, it is borrowed to fund specific projects. If international financial institutions such as the IMF have congratulated us, who are these so smart to say that our debt is not sustainable?”

— report by Wilfred Ayaga, Moses Nyamori and Moses Michira