By LUKE ANAMI and DAVID OHITO
Kenyans will pay Sh100 billion more to service foreign debt estimated at Sh1.2 trillion should the shilling continue to fall against the US dollar.
Experts have cautioned that Central Bank and the Treasury to pursue policies that would stabilise the local unit or risk losing out in funding of crucial development projects.
The Central Bank and Governor Prof Njuguna Ndung’u have been on spot over the rate of the shillings slide. The situation has seen prices of most consumer goods skyrocket. [PHOTOS: FILE/STANDARD] |
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The shilling has lost 25 per cent of its value since January.
"Debt is both domestic and foreign. If half of the foreign debt is serviced in dollars then we have to commit at least Sh100 billion or a similar margin by which the dollar has slumped," Kerrow said.
Parliamentary Finance Committee chairman Chris Okemo confirmed Kerrow’s assertion. He said: "If all currencies appreciate at the expense of the shilling, then the debt burden rises by a corresponding margin."
"We are in really bad times. Treasury Bills will go up significantly and even domestic debt will rise pegged on interest rates," Okemo added.
"Kenyans will fork out more shillings from revenues earned this year to service debt — both principal amount and the interests accrued. The erosion of the shilling spells doom for the country. It means poverty levels will rise as a few exporters of tea, horticulture and coffee enjoy the boon," said Kerrow.
Okemo said his committee will meet CBK governor Njuguna Ndung’u and Monetary Policy Committee Tuesday to discuss remedial measures and investigate the cause of the slump.
"We must be told who is responsible and what is the justification. This team has made recommendations about CBK officers and its policies before and we will demand answers on Tuesday," Okemo said.
The weak unit will mean the foreign public debt will become more expensive to repay eating into development expenditure for capital projects because debt paying is part of Consolidated Fund Services.
"If you used $1 about eight months ago, you paid Sh80. Today to pay that $1, which is at Sh101, implies you will be required to pay an extra Sh20.90, a 20 per cent increase," Mwalimu Mati of the MARS Group explained in an interview with The Standard.
"When a country borrows from the International Monetary Fund, it borrows for a period of time of not less than say 20 years. The shilling has depreciated at about 30 per cent this year alone and we still have to service our debt, which we borrowed at less than Sh80 per dollar. Where do we get the extra Sh30?"
An IMF team is expected in the country this week to help solve the woes.
Finance Assistant minister Oburu Oginga admitted our debt burden will grow by a similar margin and affect the economy too.
"It is an unfortunate situation because we are net importers of oil and steel. However, we believe this is a temporary situation. We hope it will be corrected soon," Oginga said.
Sunday, Mr Mati said Kenya will pay more for infrastructure projects such as the construction of Thika super highway, energy and other development projects requiring the taxpayers to dig deeper into their pockets.
Last week, Prime Minister Raila Odinga announced the securing of a $350 million (Sh35.70 billion) IMF facility under the Enhanced Credit Facility, to boost its forex reserves. This amount is more than $500 extended credit facility agreed in February this year when the shilling was exchanging at Sh80 against the dollar.
"Our industries are already facing high costs of import of raw materials. The financing costs of ongoing projects are ballooning," Raila told reporters in Nairobi on Friday, further confirming Mati’s fears.
"When you borrow dollars, you re-evaluate the principal amount into local currency for use. It is very difficult to repay the debt at an extra Sh30 per dollar," Mati explained.
Only in 1996, the shilling exchanged with the dollar at Sh57.11. By 2000, it exchanged at Sh76.26. About 11 years later, it has depreciated against the dollar and is now exchanging at Sh101.
While the shilling has maintained its depreciation at less than 10 per cent in the past 15 years, this year alone it has hit the 20 per cent mark leaving questions as to whether financial management at the Treasury is capable of managing the economy prudently.
"If the shilling continues to depreciate at this rate, Kenyans with children studying abroad are likely to be recalled for lack of school fees," said Mati.
He said the market needs confidence from the Government that it knows what it is doing. The late intervention by the Government through the CBK to stabilise the shilling, akin to going back to controls is not good for the economy.
Mati took issue with the fact that Prof Ndung’u has had no deputy for more than a year, saying CBK is an institution and should not be managed by one person. Mati called for the stepping aside of Ndung’u for allegedly failing to offer leadership.
