Jubilee heavy borrowing pushes Kenya's foreign debt to Sh3.2 trillion

 

President Uhuru Kenyatta and his deputy William Ruto share a light moment.

 

In a period of six months this year, the Jubilee government acquired a foreign debt of Sh226 billion. With that, Kenya’s total foreign debt has reached over Sh3 trillion, the highest in the region.

A document tabled before the National Assembly last week showed that during the six-month period, the country signed 18 loan agreements to finance various projects, including Sh60 billion from the Chinese ‘to ease the cost of doing business' in the country, and a Sh20 billion syndicated facility to help revive the troubled national carrier, Kenya Airways (KQ).

The Treasury's report was tabled just a month after the UN warned that Kenya is among African countries whose debt burden is unsustainable.

In a report titled Economic Development in Africa Report 2016, the UN Conference on Trade and Development (Unctad) advised the country to reduce her reliance on external funding as 'the external debt continually looks unsustainable."

In May, the International Monetary Fund (IMF) also raised the red flag over the country's appetite for Beijing loans, which notably, form a huge chuck of the report tabled in the National Assembly.

KQ faces turbulent times. Yesterday's strike by employees forced the airline to cancel flights leading to many losses.

But the sad part of the loans, the report reveals, is that the taxpayer is expected to repay the billions in the next two years 'in one single repayment.'

This means that should KQ fail to make money before the maturity period, Treasury will either have to renegotiate the loan or slice off from other profitable sectors of the economy.

To add to the burden, the country will have to ensure that infrastructural projects financed by the Chinese loan provide real economic benefits within the same period, as under the agreement, the creditor expects the money "in one single payment of US dollars 200 million starting July 2018.'

KQ TURNAROUND

The KQ facility, which Treasury indicated was meant to 'support the turnaround process of Kenya Airways through the restructuring of its balance sheet' was taken from the African Export Import Bank while that of China was signed with the China Development Bank.

The list of loans covers the period between February and July this year, and was made available under provisions of the Public Finance Management (PFM) Act, which compels Treasury to submit to Parliament a memorandum of all loans agreements entered by the Government.

It states: "The Cabinet Secretary shall submit to Parliament, every four months, a report of all loans made to the national government, national government entities and county governments in accordance with Article 211(2) of the Constitution."

The Act further states that the report should include the names of the parties to the loan; the amount of the loan and the currency in which it is expressed and in which it is repayable; the terms and conditions of the loan including interest and other charges payable and the terms of repayment; the amount of the loan advanced at the time the report is submitted; the purpose for which the loan was used and the perceived benefits of the loan; and such other information as the Cabinet Secretary may consider appropriate.

HIGHEST LOAN PORTFOLIO

The list of loans form part of the country's debt portfolio, which at the beginning of the current financial year stood at over Sh3.2 trillion, the highest in the region.

In some of the loans, the Government has committed the taxpayer for the next 35 years, which means that a Kenyan child born today will repay the loan until past their prime.

Among the loans in this category are the Kenya Support Devolution Programme loan which matures in 2053, and the transformation of heath systems facility (Sh14 billion), which matures in 2054. Others are the Youth Employment and Opportunities Project loan (Sh14 billion), which should also be repaid by 2054.

The list also shows another loan of Sh20 billion from the International Development Association to support implementation of Devolution and strengthen the institution concerned with the process.

Other loans signed by the Government are for the upgrade of Rift Valley Textile Factory (Sh3 billion), financing of the Ol-Karia V Geothermal Power Development Project (Sh23 billion) and access of Sirari Corridor (Sh23 billion), development of the country's SMEs (Sh1 billion) and financing of the county's optic fiber infrastructure at Sh9 billion.