Piling debt has put Kenya in tight corner

US president Harry Truman kept a sign on his desk with the phrase, “The buck stops here.” What the sign meant was that the occupant of the Oval Office was responsible for all government decisions and would shoulder all blame if anything went wrong. Apparently, this is a lesson lost on many African heads of state who excel at passing the buck!

Kenya is in the throes of unprecedented economic woes. More than 1.7 million jobs have been lost in the last year alone. Newspaper pages are replete with items listed for auction for debt default. The price of fuel, a major determinant of cost of goods and services, has increased twice in as many months. Yet there is no mea culpa from the country’s leadership. No one wants to take responsibility for a situation that has gone South egregiously.

Sophist attempts have been made by some government functionaries to lay the blame on Covid-19. But it is common knowledge that even before the pandemic began, Kenya’s economy was not firing on all cylinders. Affected by poor policies and inept bureaucrats, the economy was already in doldrums. The pandemic merely exposed how grave the situation was.

One of the policies that has brought on this current predicament is that of “looking East” instead of reliance on debt from multilateral lenders. Seemingly inexpensive at first, it has turned out to be the Jubilee administration’s Achilles’ heel. Although debt from the orient appeared easy to obtain, without the cumbersome conditionalities of multilateral debt, it has had hidden components that made it usurious. Despite the Access to Information Act which mandates the government to make known terms of these loans, they still remain shrouded in secrecy.

It has not helped that the government has adopted a quixotic approach to public spending. Vanity projects coupled with a pillage of state coffers has ensured the country is up to its neck in hock to lenders from the orient. And therein lies the rub! Debt repayment is treated as a first charge on the Consolidated Fund where all revenues are deposited. In other words, all revenue that accrues to the government first goes towards settling external debt before anything else is considered. Because of our inordinately high level of debt, there is hardly anything left for other expenses.

Economic pundits have pointed at what they say are the effects of the country’s level of indebtedness: Delays in disbursement of funds to the country’s 47 counties affecting many devolved functions of government. Inability to fund the Higher Education Loans Board in a timely manner, thus jeopardising the education of thousands of students in universities and other tertiary institutions. Lack of funds for purchase and distribution of Covid-19 vaccines leading to recourse to international loans to fund the same. Unavailability of funds to send a legal team to the International Court of Justice to counter Somalia’s irredentist claims to Kenyan territory. The country’s sovereignty is thus threatened.

For a tanking economy, petrol levies are the low hanging fruit the government hopes will redeem it from its current economic morass. But will it? For starters, government levies make up more than twice the landed cost of petroleum products. There is already incipient anger over the rapidly rising cost of living. Trying to justify the current cost of fuel, at Sh122.81 for a litre of petrol, as being comparable to Sh124.85 during former president Kibaki’s tenure will not fly with many Kenyans. They point out that at the time, the cost of crude oil was US$114.35 a barrel compared to today’s cost of US$61.61 of the same unit. It is therefore difficult to explain current fuel prices vis-a-vis those of Kibaki’s government.

No leader has taken responsibility for various levies on fuel. Even opposition party ODM, against public opprobrium, backed the Financial Bill 2018 which introduced an 8 per cent tax on petroleum products. ANC party leader Musalia Mudavadi, speaking presciently after a debate on the same bill, said the taxes would be a big burden to the taxpayer. He added that from his experience as a former Finance minister, he foresaw Kenya being a candidate for debt rescheduling.

Who will save Kenya from the inexorable slide into debt distress? Who will excoriate present leadership into sense when they propose to take on another Eurobond to service present debt? When will the holders of the top office finally say, “the buck stops here?”

-Mr Khafafa is a public policy analyst