Kenya's public debt issue raises more questions than answers



Our public debt has become one complex equation that no one seems to understand its actual variables or the way to solve it.

More puzzling, nobody seems to know the exact debt obligation owed to our generation and that of our children. To date, the actual figure varies between Sh6 trillion and Sh12 trillion, depending on who you ask.

The irony of it all is that public debt numbers belong to the family of maths and the class of sciences that are fairly objective and quantifiable. Over time, I have come to wonder whether even among Treasury mandarins there is anyone who can tell us our true obligations.

That may explain the anguish of the over 200,000 sons and daughters of the land who have camped at the International Monetary Fund (IMF) social media platforms to demand it rescinds its decision to advance the country about Sh257 billion. While their actions may not be of any manifest consequence to the decision taken by the IMF board, the effect should ring alarm bells in Treasury and State House. 

The primary questions at play here are: one, why would citizens be so distrusting of their own government on matters public debt? Two, are there valid reasons to worry about the debt question? And three, is there any chance that we could avert the real/perceived impending debt crisis?

First things first, there is absolutely nothing wrong with borrowing to leverage on economic growth and development. In monetary economics, the rule is that if you can find productive investment opportunities, then you can borrow 100 per cent. But this has to be supported by objective, reliable and verifiable evidence on excess benefits vis a vis the cost of the debt.

Subjected to these evidential thresholds, our cradle for debt crumbles like a house of cards. These are the facts. The minimum basic standard for any borrowing spree is ability to pay as measured in future cash flows. Analysis from the Controller of Budget (CoB) reports indicate that we spent about 57 per cent of actual internally generated revenues on debt payment in the first half of 2020/21 fiscal year. In the 2019/2020 fiscal year, public debt repayment was 45 per cent of total internal revenues, compared to about 38 per cent in the fiscal year 2014/15.

It is worth noting that public debt is the first charge/priority on government revenues. This implies that under all probabilities, part of what is borrowed is not only used in development, but also on recurrent expenditure. This is against the basic constitutional limits on application of public debt to development expenditure only. Secondly, as per parliamentary Hansard, the borrowing limit was expanded in December 2014 to about Sh2.5 trillion and by election night in August 2017, this had been opened to Sh6 trillion.

In October/November 2019, the debt limit was not only expanded to Sh9 trillion, but also the peg of 50 per cent against the GDP abolished. In each of these requests submitted to Parliament, National Treasury has always claimed the expanded window utilised over a 10-year period. However, it has always been exhausted in less than three years. This is outside other debts hoarded under off-balance sheet frameworks in State agencies and the new fad in town called public-private partnerships.

While Parliament has the mandate to limit excessive and reckless borrowing on the part of the Executive, it would appear that they either lack capacity to understand debt issues or are in bed with the Executive. This may therefore explain the citizen disdain for their own government on matters loans.

On the second question on valid reasons against more debt, there are plausible reasons to believe as a country, we are not getting return on investment. Quick incidences come to mind on this: one, while in official circles we talk of beneficial effects on the economy, from huge infrastructure investments, the employment data, government revenue trends and performance of micro, small and medium (MSMEs) do not reflect such impacts. As they say, “kwa ground vitu ni different”.

Two, scanning through Budget policy statements and budget proposals for the period between 2014/15 through 2017/18, a lot of the debt appetite was pegged on oil dollars from our Northern corridor. Today, we know there may be no oil dollars flowing to us anytime soon after all. In African wisdom, that is classical “counting your chicks before they hatch” theory. Never mind that not only the chicks had been sold, but the mother also has been mortgaged.

Third, for the past eight years, official data paints a rosy and robust economic growth and as such, justification for more debt. Formally, unemployment rate around here is still under 10 per cent and GDP is projected to grow at 7 per cent in 2021/22. But alas, how come revenue trends miss this great economic performance? How will the economy beat all the extraordinary odds against Covid-19 to post a 7 per cent growth when it has never done so in ordinary times since 2007?

Never mind we are in the midst of the severest lockdown, with not a single economic stimulus to cushion the hardest hit victims. Besides, any hope of procuring our own doses of the vaccine is pegged on another loan to come from World Bank after June 2021.

Fourth is this nauseating idea of Sh2 billion majestically walking away from our coffers daily to heaven knows where. Of the over Sh7 trillion borrowed in the past eight years alone, how much has disappeared into that bottomless hole? Who will pay for it and how will it be accounted for in official data for return on investments? Could it be the missing variable in evaluating impacts of the grandiose debt-driven infrastructure projects and their effect on household incomes, employment rates and government revenues?

In the real world of financial economics, creative works of imagination do not pay any returns. If you have the golden streams, then dollars flow. But if you do not have, then you simply do not have. The greatest tragedy right now in our public debt puzzle is official denial. In denial, our economic and fiscal policies have maintained an aura of prosperity, when basic common sense the world over is that these are indeed unusual times.

In denial, official extravagance, waste and plunder projects occur even when the masses sink deeper into abject poverty and watch their livelihoods go up in smoke.

As I have argued here many times, economic rules remain the same and are universal since human civilisation. Basic economic wisdom dictates that when you find yourself in a debt hole, you re-wire your economic structures, expand your cash flows base and drastically restructure your expenditure programmes. I have never heard of “we must borrow more to get out of such a hole”! I want to inspire hope, but that is the economics I understand. Or maybe, just maybe ‘abracadabranomics’ will become a field of economic study in the near future. God bless our land and nation!