Public debt burden still a powder keg in Kenya

Thomas Jefferson, third president of the United States once said, “I place the economy among the first and most important virtues, and public debt as the greatest of dangers to be feared.” This truism holds true today as it did then. An introspection of Kenya would reveal the daily diet of outrage evident in the polity to have its genesis in overwhelming public debt.

A report from Africa News reveals Kenya, at USD 3.02 billion, to be the second most indebted African country to the International Monetary Fund (IMF). The report further says, “Kenya continues reforms aimed at managing debt while fostering growth.” Yet another report from Oxfam says, “according to the 2024 Medium Debt Management Strategy – at the end of June 2023, Kenya’s debt level reached 70.8 per cent of the GDP while total debt service as a percentage of revenue was 58.8 per cent.

These figures paint a grim figure especially when compared to the IMF’s debt to GDP recommended threshold of 50 per cent for developing countries and Kenya’s own debt service as a ratio of revenue put at a maximum of 40 per cent.

An appreciation of how Kenya got into its present parlous economic and financial straits is imperative. Kwame Owino and Maureen Barasa of the Institute of Economic Affairs Kenya talk of the misleading “Africa Rising” narrative. In an article published in the East African, they talk of it as “the period after the turn of the millennium where it appeared that Kenya and its neighbours were getting things right.”

They further say, “starting 2013, Kenya saw an unprecedented fiscal expansion preceding the cheerleading of the Africa Rising narrative. The growth that coincided with this fiscal expansion was low quality because it not only depressed business investment but also generated lower poverty reduction in percentage point of growth.”

The corollary of this is that Kenya now finds itself deeply indebted. Massive amounts of borrowed funds having been spent on expensive vanity projects with no tangible returns to citizens. Yet the polity is obliged to repay these funds. By law, the first charge on the Consolidated Fund is towards debt service as and when it falls due.

Despite best efforts to pay down public debt over the last two years, Kenya still remains in the crucible of a crisis. Tax revenues needed to settle debt as it falls due remain inadequate. Jeremiads warn of an implosion, should additional tax measures be instituted, especially targeted at raiding pay-slips. Clearly the country finds itself between a rock and a hard place; damned by an impending rebellion if it taxes further and damned to debt default if it does not.

The way out is to have a sober national conversation which does not include talking down to the citizenry. Effective communication is a prerequisite in assuaging popular anger. This communication must stem from the fact that Kenyans now have technology tools within their reach to fact-check on all utterances and actions emanating from the Executive.

If need be, avail the national debt register and communicate in concise terms steps being taken to address debt. Dispel the notion that Kenya is steeped in odious debt. Or dumb down the body politic and wait for another round of demonstrations.

Mr Khafafa is a public policy analyst