President William Ruto is in China for the Belt and Road Initiative where he is set to ask the Chinese government for Sh150 billion in new loans.
Besides requesting for an extension in the terms of the current loans, the government is looking for more money that is intended to finance ongoing projects and pay off the loans falling due.
According to the National Treasury, China is the third largest creditor to Kenya, accounting for 30 per cent of the country’s external debt currently standing at more than Sh5 trillion.
More debts mean that Kenyan taxpayers are in stock for persistently higher inflation and constrained incomes in the near term, particularly against a weakening shilling.
As at March 2023, the country’s gross public debt stood at Sh9.6 trillion, a figure that grew by Sh488.1 billion in the first three months of the year alone; new debt taken on by the Kenya Kwanza government.
Aside from walking back on the pledges made to voters during the campaign trail, Kenya Kwanza’s borrowing spree, at a time of such economic peril, will only prolong the current hardships majority of the citizens are living through.
In the first place, the government’s ambitious efforts to grow the tax net has predictably had a retrogressive effect. Businesses in parts of the city are closing shop or scaling down due to effects of harsh import rules and levies.
Merchants are shifting from digital to cash payments to avoid arbitrary assessments of their income by the taxman to the extent that the KRA is pleading with citizens to share with them ideas of generating more tax revenue.
The domestic market is also constrained and the government is competing for credit with the private sector, a disincentive for companies that desperately need these fiscal resources to recover from the ravages of Covid pandemic, create more jobs and expand.
It is thus worrying to see President Ruto signing on Sh150 billion in additional loans, without a clear strategy of how the country will emerge from the current economic rut.
In June next year Kenya is due to pay Sh297 billion of the Eurobond taken by the Jubilee administration in 2013 and the government has already started talks with the World Bank and the International Monetary Fund, IMF to pre-empt a default.
The latest World Bank report on Kenya indicates that while many countries have larger debts relative to their GDP, the cost of Kenya’s debt relative to the revenue collected is high by global standards and made worse by other loans extended to parastatals.
Kenya is slightly lower than Sri Lanks, Ghana and Zambia in terms of interest payments as a percentage of revenues. One only needs to refer to the economic trajectories of these three countries to appreciate that it is not a cluster that Kenya should be proud to be a part of.
Parliament has the tools necessary to ensure that the Executive’s appetite for debt is checked and that the management of the existing debt pile is prudently managed.
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