Kenya’s debt burden has grown astronomically in the past seven years and is now precipitating a crisis. Unless urgent restructuring is done, the country faces a scenario where it cannot pay back its debts.
For instance, about 43 per cent of debt from the local market matures next year but it seems the National Treasury may not pay back the cash. That is a recipe for disaster.
Inability to retire debts sends negative signals to the market and puts a country in bad books internationally. High debt crowds out cash for capital development and puts the government on the cesspit of cyclic borrowings.
The challenge for Kenya is the incapacity to live within its means. It borrows heavily to meet its budgetary requirements, and worse even for recurrent expenditure, as demonstrated with the Eurobond cash. Consumption is high but productivity minimal.
Matters are exacerbated by the fact that some of the borrowed cash is embezzled and therefore never serves the intended purpose.
In 2012, the debt portfolio was Sh1.9 trillion, which then represented 49.5 per cent of the Gross Domestic Product (GDP).
Since then, the figure has risen to Sh5.8 trillion in the 2018/19 financial year, nearly twice the national budget and representing 62.3 per cent of the GDP, closer to the tipping point of 70 per cent. International best practice demands that the debt ratio to the GDP should not pass 50 per cent.
The Jubilee administration has demonstrated an insatiable appetite for debt. It has defined itself with profligate spending to push large-scale infrastructure projects which are largely populist as they have minimal returns on investment.
On this score, the classic example remains the Standard Gauge Railway from Mombasa to Nairobi, built at a cost of Sh327 billion borrowed from China, but which makes huge losses, meaning it is unable to pay back the loan.
Several other mega projects, such as the Galana-Kulalu irrigation scheme at the Coast which consumed Sh7 billion, have come a cropper.
Dreams of huge dams, wide roads and massive extension of electricity connectivity, though noble, have become nightmares.
Despite the high debt regime, the government is still looking at raising the borrowing cap to Sh9 trillion. It must cut costs, expand productivity, tighten financial management, fix corruption and tame this appetite for borrowing.
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