Tough times as Sh140b debt due amid costly campaigns

Today, when President Uhuru Kenyatta goes to church and kneels down to pray, he will be seeking God’s attention, the country’s understanding, patience of the masses and the grace of Kenya’s creditors whose Sh140 billion loan is due.

The latest bulletin from the legislative think-tank on the economy and the budget predicts a troubled future as the clock ticks to the August 8 General Election.

Packed inside the six-page dispatch seen by Sunday Standard is a worrying assessment that the splashing of campaign billions, erratic weather and army worms will dent the economy and prolong the biting inflation and food crisis.

Splashing billions

The Parliamentary Budget Office (PBO) is also worried that as politicians move around the country splashing billions in campaigns, they will not only increase supply of money in the economy, but are also likely to drive up consumption and unless the National Treasury and the Central Bank of Kenya (CBK) step up their game, the cash-splash will push up prices of goods and services. In simpler terms: Things are going to get more expensive.

The report has also warned that the global deal by oil-producing countries to cut oil supply, coupled with the massive Sh140 billion in debt repayments that have to be made, will eat into the government’s foreign reserves and could upset stability of the Kenya shilling – in other words, you will pay more for the dollar.

As if that is not enough bad news, there is a bold prediction that just like it has happened before in all election years when the economy slows down, this year will be no different.

The result? Missed revenue targets, huge budget shortfalls and more borrowing to fill that gap! Besides, they attacked M-Akiba as a con by the government to get cheap money from the public because the interest rate offered on the mobile-phone-based bond is lower than the rate of inflation. Looked at together, all these factors portend an economic and political nightmare for a government that is struggling to steady the ship against a rising tide of an Opposition that has taken advantage of the rise in the cost of living to woo angry and hungry voters.

There is also a verdict that Kenya is living beyond its means because it has already surpassed the target for the external debt, which had been set at Sh1.79 trillion, but according to the latest report of the National Treasury tabled in the National Assembly on Wednesday, it now stands at Sh2.01 trillion.

“This implies that there has been fast accumulation of external debt above the projected levels; this will adversely affect the economy in the medium to longer term when the country will be required to part with high interest and debt repayments, which are normally a first charge on Government revenue. It also makes the economy vulnerable to increased exchange rate risks,” the report says.

It is a rare blunt assessment of the economic situation at a time when the government has offered maize subsidies to millers in exchange for cheap maize flour for the masses, who were feeling the pinch as a result of the increase in prices. The government is also waiting on maize and sugar imports, with a July deadline for white maize, and an August deadline for yellow maize for animal feeds.

But the mandarins who advise MPs insist that given the economic situation, the imports will have to increase and persist way after August.

They predict crop failure not just because of the erratic rainfall, but because of the infestation of army worms in Kenya’s maize-growing counties.

“The harvest period is likely to be delayed due to erratic weather patterns which will affect availability of farm produce. In addition, maize prices have sky-rocketed since January due to the prevailing drought and the hope of the prices declining is being dimmed by the infestation of maize plantations by army worms, which is a huge risk to improved maize production. This means that the country may continue importing maize for a longer period,” said the PBO’s Monthly Bulletin for May released on Friday

The House mandarins have also called on National Treasury Cabinet Secretary Henry Rotich and the CBK to step up tight measures on the fiscal and monetary policies to ensure the country survives the likely spike in inflation, the massive outflow of foreign currency as it pays its debt, buys expensive oil and continues to import food.

“Going forward, it is expected that the Kenyan Shilling to the US Dollar may weaken in the coming months. This will be as a result of an increasing import bill and retiring of maturing debts that may even result to low foreign exchange reserves,” notes the PBO report.

Raiding the poor

“Additionally, crude oil prices are on the rise after OPEC Countries agreed to reduce their supply of oil so as to drive up prices. Since Kenya is a net importer of oil, this might negatively affect the country’s import bill. Further, the syndicated loan amounting to $750 million (Sh77 billion) taken up in 2015 is expected to mature in 2017 together with treasury bonds totaling more than Sh63 billion.” The House mandarins also slammed the M-Akiba – the short-term bonds issued via mobile phones, targeting low-income households—as the government raiding the poor. They said the inflation was at 11.5 per cent, therefore, the 8.8 per cent interest rate meant that “the income generated from this investment platform is eroded in real terms”.

“This trend is expected to continue given that bids are accepted on competitive terms, which are likely to maintain a low interest rate. Unless there is control on the rise of inflation rate, the benefits of M-Akiba will be only one way i.e. cheap source of finance for the Government and the journey for financial inclusion will be a long way off,” reads the bulletin.

A lot of money is going into pensions and payment of debts, especially the Eurobond and Standard Chartered syndicated loan.

The alarm is that if there’s drought this year or, say, a major economic shock that the country has not foreseen and cannot control, then the economy will slow down, and even the revenue targets that the taxman is chasing will be missed by a mile.

“This could mean accruing of more debt, implying that the country could be running out of counter cyclical measures to stabilise the economy in the event of a shock,” says PBO Bulletin.