Kenya’s Treasury officials this week will be sighing a breath of relief as the news of debt repayment holiday from bilateral donors including China sink in.
However, that relief will not last long. The debt suspension so far – part of the G20’s Debt Service Suspension Initiative (DSSI) – is only in place for six months, meaning in at most four month’s time headlines such as “Kenya could fail to repay its debt in 2025”. “Kenya is in financial distress, government admits”, Kenya Likely to Breach the U.S.$80 Billion Debt Ceiling By 2022” will resurface. The suspension will only kick an alleged “problem” down the road.
But is the “problem” a real one? Is Kenya – debt suspended or otherwise – really in a desperate debt crisis? Are the debt headlines from domestic and international media outlets objective about Kenya’s financial state?
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My answer is no. The headlines are not impartial. And no, this is not about domestic politics. The problem is bigger. The headlines all have their basis a constrained narrative – a narrative essentially shaped from outside Kenya, and the African continent. It is a narrative that goes back to the late 1970s and has its origins in the colonialism that Kenyans fought so hard and finally formally escaped in 1963. And it needs changing.
Let me explain.
All countries borrow – rich and poor. They borrow from each other, from taxpayers, from local and international banks. Whenever we talk about Kenya’s borrowings, our starting point should be (but currently isn’t) that Kenya is a country that needs finance. 25 per cent of Kenyans do not have any electricity. 41 per cent of Kenyans do not have access to minimal levels of safe drinking water. At least 13 per cent of the population do not have internet access. In COVID-19 times, when children were unable to go to school for over 10 months, these are basic living standards that must be met. The question is how.
Debt – and in particular from other countries, international organisations or even multinational private banks can be a useful means of delivering these basic standards. Especially when, for example – people do not have formal, stable jobs and therefore cannot pay taxes nor can they save. At least 40 per cent of Kenya’s population is in this situation.
In this kind of a situation – a situation that many other African countries also find themselves – there is only one answer. To pay for structural change, for structural transformation of the economy to create jobs.
There is a legitimate question as to whether the Government of Kenya has been borrowing to deliver such change and transformation. For example, have loans been spent on recurrent expenditures such as salaries or productive investments such as energy, industrial parks, rail, or even roads? The latter can – just by their very existence – stimulate economic growth much larger than the initial investment made. Look at new highways and the productivity increases they have generated from people not being stuck in traffic for four hours every day, not to mention areas of real estate that have sprung up whose value continues to appreciate. Similar effects will no doubt soon be seen as a result of the SGR.
The fact is – as Africans, as Kenyans – we need to get over the idea that debt is always bad. That’s because the last time that Africans enabled a “dirty debt” narrative to prevail the consequences were extremely harmful. In the late 1970s, a so-called African debt crisis began to take shape for reasons entirely outside of the continent. Kenya was never one of the African countries for whom much debt was cancelled because the economy was fairly diversified, so it was able to bounce back fairly quickly. Data collated by Development Reimagined suggests that only China cancelled any of Kenya’s debt over the period 2000-2018 – a total US$13 million. Nevertheless, public debt rose enough to be encouraged by multilateral organisations to reform - “Structural Adjustment Programs” (SAPs), which cut government spending through privatisation to deliver basic public services. Sadly, yet predictably, these austerity programmes hindered rather than helped citizen’s abilities to access basic needs, cutting growth and therefore government budgets even further. While I am a strong proponent of the potential role of the private sector and development banks in growth, such business “reform” programmes continue today, despite unclear evidence of the dents they make in cutting long-term poverty or creating new jobs.
This experience is worth reflecting on as claims of a “debt crisis” in Kenya and other African countries are now being made. There is a real risk now of falling into a new and severe austerity trap if Kenyans simply acquiesce to this narrative.
The fact is, just like the experience of the late 1970s, COVID-19 has been an event that affected every country in the world equally. The Government of Kenya budgeted $1.7 billion on COVID-19 health and economic recovery in 2020 – equivalent to 2 per cent of GDP. This might seem high to some citizens but it is far below the 7 per cent average for Asia Pacific countries and 13 per cent for the 20 richest countries in the world. So why so little? On paper, it doesn’t make much sense. In 2019, Kenya was just one of 64 – yes 64 – countries in the world that had the equivalent of over 60 per cent of GDP in loans – from a mix of international and domestic public and private sectors. Kenya was not an outlier then.
But Kenya’s COVID-19 response has been unequally constrained because today, Kenya is – apparently due to COVID-19 – one of just 12 countries (all African) that the IMF classifies as at high risk of or already debt distressed. The Jubilee Debt Campaign predicted a public debt crisis in Kenya in 2020, even as the year closed. But on what evidence are these based? What evidence is there behind the external debt threshold that Kenya’s parliament has adopted? What makes low levels of debt more “sustainable” than higher levels, when people cannot turn on lights or get their produce to markets without potholes?
Externally imposed, poorly-evidenced constraints have put a break on Kenya’s response to COVID-19. These constraints led to a confused response by the Kenyan government to initial offers of joining the DSSI. At first, the Kenyan government was worried that even just requesting suspension may lead to a credit downgrade and therefore higher interest rates on private proportions of Kenya’s debt – a third of the total. Then, seeing the minimal effect on other country's markets from obtaining suspension, the government changed its mind. Now, the Kenyan government is considering seeking a new loan from the IMF that will likely come with austere conditions and need to be repaid within 10 years. The government is also seeking restructured loans from China, in particular for a rail project that has at its core public good properties that may constantly require government subsidy.
These are not necessarily the right long-term financial decisions. Kenya needs to have an “unconstrained” understanding of our financial situation to make the right financial decisions and avoid the austerity traps of the 1980s. Our decisions must be based on core principles of African – and Kenyan – agency, accountability to citizens rather than the international system, and equity in terms of people’s access to basic needs and growth.
As Government officials gather some energy after the good news, I hope that in 2021, they will not only remember history and face debt levels head-on, they will also justify changes to them and encourage development partners to listen and shape future global systems to avoid constraining African countries once again. COVID-19 is a shared global enemy. All people should share the burden equally, and that means avoiding letting Kenya’s debt become a dirty word.
The writer Hannah Wanjie Ryder is a consultant