The first month of the year is normally a period of regret for many people after they splurged during the festive season.
They are hit by overwhelming guilt, especially when the realities of ‘Njaanuary’ set in. They can’t pay fees, and struggle to explain to their children they wasted the money in December – and some of it was borrowed.
They are highly indebted already, and any additional borrowing would only push them further into a debt trap. Additionally, in times of desperation, the only lenders willing to loan out money will do so at exorbitant interest rates.
If this is you right now, you are in good company.
The government, like many of its citizens during the festive season, wasted a lot of money. After years of binge borrowing and splurging on projects, it is now ruing the extravagance.
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Loans are maturing at jet speed even as tax revenues dwindle, a situtation worsened by the Covid-19 pandemic.
Yet, most of the projects that absorbed these loans are far from complete, meaning their economic value is yet to be realised. Some have stalled.
The government, which is now looking at debt restructuring and cancellations to help it free up cash for other critical spending, such as health and education.
It has finally conceded that servicing loans for some white elephant projects is denying Kenyans critical services.
Speaking to Spice FM, a radio station owned by the Standard Group, the Treasury Cabinet Secretary Ukur Yatani admitted that some past loans are “more or less considered dormant.”
He explained that this is because the country has “not been absorbing funds or implementing these projects”.
The loans have since been reclassified and the Treasury has entered into an agreement with the respective creditors.
“For those dormant loans, we have entered into negotiation with the partners, and now we have reprogrammed them,” he said.
“In a situation where absorption is low, then it does not make a lot of sense to continue interest or commitment fees when its intended objective of realising development is not realised.”
Yatani added that the government had since classified a few of the loans “that are candidates for cancellations”.
As of November last year, Kenya’s loans stood at Sh7.3 trillion, an amount expected to race past Sh10 trillion by the time President Uhuru Kenyatta finishes his term next year.
A good chunk of this money, the government has insisted, has gone into building roads, railways, airports, bridges, energy projects, dams and other infrastructure projects critical for growing the economy.
However, observers note that some of these debt-funded projects have been white elephant projects, and have only helped to narrow the fiscal space.
With the narrowing of the fiscal space, the government has been left with little headroom for borrowing at a crucial time when the economy has been devastated by the coronavirus pandemic.
“The truth is that the government misused opportunities for raising public funds during a period like now,” said Joy Kiiru, an economics lecturer at the University of Nairobi.
She said some of the loans the country took before were unnecessary.
“We should be taking them now, but unfortunately we misused that space and it is no longer available so we suffer through it. In other words, we are the sacrificial lambs.”
Yatani did not reveal some of these dormant projects, but there are controversial initiatives that Kenya continues to pay for even though they have barely left the ground.
The World Bank noted in a report that the significant narrowing of fiscal space is limiting the ability of the government to finance critical public goods needed to support inclusive growth – including in healthcare, water and sanitation, and education – as well as to provide more resources for counties and development spending.
The Treasury has lagged in the disbursement of funds to counties by two months as tax collection underperforms.
The chairman of the Council of Governors threatened legal action to compel the Treasury to release Sh94.7 billion, which saw Yatani disburse Sh25 billion last week to the devolved units.
The move came after China gave Kenya a debt repayment holiday, with the country saving close to Sh27 billion.
“With the rapid accumulation of debt in recent years, large deficits, rigidities in government expenditures, and persistent shortfalls in revenue performance, Kenya entered the Covid-19 pandemic with significantly depleted fiscal space,” read part of the World Bank report.
Experts agree that there is some recurrent spending, such as wages, pensions, and interest payments, that cannot be reduced as this could drive the country into civil strife, according to Kiiru.
The government is left with the option of ensuring it collects every penny owed to it, and cutting waste, especially on procurement.
“Non-starter developments that were started to swindle the government must stop even as they try to collect all the money owed to them,” added Kiiru.