Urgency to tackle public debt takes center stage in Uhuru’s succession

Data center

Urgency to tackle public debt takes center stage in Uhuru’s succession


brianngugi_img

Summary

  • Vice President William Ruto and ODM party leader Raila Odinga are the main hopes to succeed President Uhuru Kenyatta, who will step down at the end of his two constitutional terms.
  • Mr Kenyatta has embarked on an aggressive campaign for veteran opposition Mr Odinga against his deputy Dr Ruto.
  • President Kenyatta’s administration has relied on loans to build roads, bridges, power stations and the Standard Gauge Railway (SGR) since he took office more than nine years ago .

Leading contenders to succeed President Uhuru Kenyatta are racing to mobilize voters ahead of the August 9 presidential election. And as the campaigns intensify, two of the key questions that aspirants continue to focus on are how to revive the economy after the Covid storms, and more importantly, how to urgently deal with the growing crisis. debt.

Vice President William Ruto and ODM party leader Raila Odinga are the main hopes to succeed President Uhuru Kenyatta, who will step down at the end of his two constitutional terms. Mr Kenyatta has embarked on an aggressive campaign for veteran opposition Mr Odinga against his deputy Dr Ruto.

Analysts say the shift to a campaign based on issues such as the economy and debt is refreshing.

President Kenyatta’s administration has relied on loans to build roads, bridges, power stations and the Standard Gauge Railway (SGR) since he took office more than nine years ago .

This pushed up the public debt from 1.89 trillion shillings which the Jubilee administration inherited from retired President Mwai Kibaki, to 8.59 trillion shillings projected by the end of this fiscal year in June.

sgr

Standard Gauge Railway (SGR) passenger train travels to Miritini station in Mombasa in this photo taken October 14, 2021. PHOTO | KÉVIN ODIT | NMG

This means Mr Kenyatta’s government will have borrowed at least 6.7 trillion shillings by the time he leaves office.

The Covid-19 pandemic has challenged Kenya’s tax revenue collection at a time when more of its debt was coming due. It drew attention to the burden of debt repayment and its effect on an economy trying to find its footing after the Covid disruptions.

While voters are expected to judge both Mr Ruto and Mr Odinga’s economic credentials, and how they plan to improve job creation and raise incomes for the masses, the two rivals also focused their campaign rhetoric on addressing the over-indebtedness facing Kenya.

“Debt has never been a conversation in our election and this is the first time,” said economist Tony Watima. business daily acknowledging the change in election campaigns this year.

Mr Watima said the emergence of debt as a campaign issue portends a welcome shift for Kenya’s highly ethnicized politics towards issue-based campaigning.

However, he said the candidates must move forward and provide details and practical solutions on how to solve the debt crisis.

The vice president said he would cut spending on mega road, rail and power projects, which have fueled Kenya’s debt overhang in recent years, and funnel more money into small businesses if he wins this year’s elections.

road

Vice President Dr William Ruto addressing a public rally at the historic Jacaranda Ground in Nairobi on Sunday January 16, 2022. PHOTO | DENNIS ONSONGO | NMG

Key to Dr Ruto’s campaigns is the so-called bottom-up business model, one plan of which is the establishment of a 200 billion shillings fund for small businesses to increase production in sectors ranging from housing and food processing to manufacturing.

“Debt must be the last resort. We must not be slaves to the debt of any place or any country,” Ruto said recently.

ODM party leader Raila Odinga, for his part, said he would aim to improve debt repayment terms, saying existing obligations of more than 1.15 trillion shillings for the current financial year could compel the country to seek assistance from the International Monetary Fund (IMF).

The growing debt “places Kenya in the group of most indebted middle- and low-income developing countries that are now forced to resort to IMF credit and IMF-supervised austerity programs,” Odinga told Chatham House in London last week during his UK tour. .

If he wins, Mr Odinga said he would “seek the indulgence and cooperation of our development partners to renegotiate our debt”.

scoffed

ODM leader Raila Odinga addresses mourners during a funeral in Nyakach, Kisumu county on December 11, 2022. PHOTO | TONY OMONDI | NMG

For new loans, his government will strive to borrow at “favorable rates, negotiate repayment periods that are not stressful, and invest in businesses that offer good socio-economic returns.”

China’s debt accumulation has caused concern among analysts and activists in recent years as loans have swelled to hundreds of billions of shillings in just a few years while its repayment terms are not made public.

The most notable Chinese-funded project is the Standard Gauge Railway (SGR), the commercial viability of which has come under intense scrutiny.

But for nearly four years now, Kenya has been shedding costly commercial debt to reduce bloated repayments while the Covid-19 pandemic has curtailed revenue collection.

As part of this strategy, he secured hundreds of billions from the IMF and the World Bank, a key element being direct loans for the budget to supplement the public purse for things like paying civil servants’ salaries.

Under the administration of former President Mwai Kibaki, Kenya steered clear of this type of credit, with the bulk of aid from institutions such as the IMF and World Bank coming in the form of project support.

This change follows a deteriorating cash position marked by lower revenues, worsening debt service obligations and the effects of the Covid-19 pandemic.

World Bank loans now account for more than Kenya’s entire bilateral debt of 1,090 billion shillings from countries including China, Belgium, the United States, France, Japan, Germany, Austria, Spain, Italy, Finland and Denmark.

This offered the World Bank and the IMF influence over Kenya’s economic policy planning. For example, global donors have ordered Kenya to put in place strict conditions in many sectors, including a wage freeze for civil servants and the imposition of new taxes.

Typically, World Bank loans have zero or very low interest rates and have repayment periods of 25 to 40 years, with a grace period of five or 10 years.

Currently, Kenya’s total debt stands at 70% of gross domestic product (GDP), up from around 45% when he took power – an increase which some politicians and economists say is burdening future generations with too much debts.

The government has defended the increase in borrowing, saying the country needs to invest in its infrastructure, including roads and railways.

The changing lending trends emerged as China reported a reduction in lending to Kenya and other African countries in the coming years after cutting financial commitments to projects on the continent by a third. over the next three years.

In December, President Xi Jinping at the Forum on China-Africa Cooperation (FOCAC) pledged to invest $40 billion (4.54 trillion shillings) in African countries over three years. That’s down 33.33% from the $60 billion (Sh6.81 trillion) the world’s second-largest economy committed to African countries at the last two FOCAC summits, which take place every three years. .

Declining funding for Africa, research economists say, could indicate that Beijing is starting to see signs of diminishing benefits from the money it commits to the continent.

China’s influence on the development of Kenya’s megaprojects began to gain momentum with the construction of the Thika Highway between January 2009 and November 2012 for nearly 32 billion shillings during President Kibaki’s last term. .

China Road and Bridge Corporation, a subsidiary of China Communications Construction Company, has since won the lion’s share of Kenya’s megaprojects – at least two railways, two ports and road projects.

The plan to reduce cash flow – which largely comes in the form of lines of credit, investment and trade finance – follows rising indebtedness among African countries, compounded by the economic fallout from the pandemic.

Countries like Zambia have struggled to service their external debt in recent years and have become the first to default on Eurobonds, while Ethiopia’s default risk has increased due to of the ongoing civil war that has clouded the economic outlook.

Kenya, on the other hand, was forced to drop an offer to extend debt relief with Beijing beyond June after Chinese lenders, particularly the Exim Bank, opposed the deal. entered into by the world’s richest countries under the Debt Service Suspension Initiative.

This followed a standoff that saw Chinese financiers delay disbursements, leading to a cash crunch for Chinese-funded projects in June.

[email protected]

About Wanda Dufresne

Check Also

EU seeks $140 billion to insulate consumers from energy crisis

By Kate Abnett and Tom Käckenhoff BRUSSELS/DUESSELDORF (Reuters) – The European Union executive announced on …