Kenya: Puzzle of 1.2 trillion shillings in loans borrowed during Covid year

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Kenya increased its public debt by more than 1 trillion shillings in the year of the Covid-19 pandemic after the government last week received the first installment of the latest 257 billion shillings loan from the International Monetary Fund.

This now makes the period between March 2020 and March 2021 Kenya’s worst in terms of borrowing after the government’s appetite for debt increased by 69%.

In the eight months between March and November last year, Kenya increased its stock of public debt by 971 billion shillings under the guise of fighting the Covid-19 pandemic.

That translates to around 121 billion shillings per month, a sharp increase from the 71 billion shillings the country was borrowing per month on average of the year until March 2020, before the coronavirus hit the country.

After the government updated its records with new loans taken between November and March 2021, the stock of public debt is expected to reach 1.2 trillion shillings in just one year.

To put that number into context, one need only build three of the standard gauge railway lines the Chinese have built from Mombasa to Nairobi at 327 billion shillings.

This increase in borrowing is no longer supported by the rhetoric that the Kenya Revenue Authority (KRA) is falling far below its revenue targets.

Last week, KRA came out to brag about its extraordinary four-month record.

In his monthly fiscal update, KRA Commissioner General Githii Mburu said on Saturday that the tax agency recorded the highest rate of return since the start of fiscal year 2020/2021 after collecting 144, 6 billion shillings in March 2021, exceeding his revenue target.

Mr Mburu said it was an exceptional performance compared to February, when the KRA raised 127.7 billion shillings, registering a performance rate of 105.1% to exceed its target of February revenue collection.

Revenue figures

Despite the slow economic progress, Mburu said the KRA recorded revenue growth of 11.2 percent, collecting a surplus of 6.6 billion shillings in March 2021.

“This was the fourth month in a row that KRA has shown improved and above target performance since December 2020,” he said, exploding the rhetoric that his agency was doing poorly, to justify an increase in borrowing .

The National Treasury has defended excessive borrowing over declining income in the wake of the Covid-19 pandemic.

As soon as Covid-19 hit Nairobi last year, Kenya stepped heavily on the borrowing accelerator, reaching out to multilateral lenders in a bid to build its war chest in the fight against the pandemic.

The World Bank was the first to open its purse strings, providing immediate 6.8 billion shillings in support to the health ministry for preparations and response as it stepped down to consider a larger loan.

Then his Bretton Wood brother, the International Monetary Fund (IMF) came in second, advancing 78.3 billion shillings to Nairobi to deal with the pandemic.

At the time, Kenya said it expected a significant cash shortage due to the containment measures.

After the IMF disbursement, the World Bank wired an additional 108 billion shillings to the Central Bank of Kenya (CBK) as budget support and additional resources to help fight the deadly viral infection.

That was not all. The African Development Bank also joined in the fundraising effort, sending Nairobi a further increase of 22.5 billion shillings in the form of a concessional loan.

The European Union supplemented this with an additional 7.5 billion shillings in the form of grants.

In just under 60 days, Kenya had already secured 223 billion shillings as part of its Covid-19 war chest.

This was before launching other fundraising efforts from commercial lenders in local and international markets. He didn’t stop there, he also went for debt relief from the big lenders.

One year, down the line, another lockdown, and Kenya appears to be repeating 2020.

New IMF loan

On Friday, the IMF again approved a new 257 billion shillings loan for Kenya under a 38-month program at a time when Nairobi struggles to repay its mountain of debt.

The National Treasury said the first disbursement of the 33.7 billion shillings loan will occur immediately, while a second tranche of the 44.2 billion shillings loan will be released by June 30, 2021.

“The balance will be disbursed following subsequent reviews of the program conducted approximately every six months,” Cabinet Secretary of the Treasury Ukur Yatani said in a statement on Saturday.

It comes at a time when a poll has found that a majority of Kenyans are angry with the government’s insatiable appetite for debt.

According to an Infotrak study of Kenyans’ perceptions of foreign debt, 81% of the population is angry, fearful or anxious about the country’s growing debt, while 62% do not approve of regular borrowing from the country. ‘foreign. Meanwhile, 52 percent of Kenyans rate the management of government borrowed funds as poor, while 76 percent believe Kenya gets most of its foreign loans from China.

The study also found that Kenyans feel that the government keeps getting foreign loans because they keep asking for them, but also doesn’t care how the loans are used. “81 percent of Kenyans feel anxious, angry or fearful about the country’s level of debt,” Infotrak said.

But very concerned about the country’s external debt, 38% of Kenyans fear that future generations will be in debt for a long time, while 34% believe that Kenya will be unable to repay the debt and default, which would embarrass the country. . country.

Another 24 percent fear that if Kenya defaults on external debt, domestic and strategic resources and infrastructure will be taken over by external creditors.

The Treasury said the latest IMF loan had four key deliverables, including stepping up the short-term Covid-19 response, targeting health and other sectors most affected by the pandemic.

The loan will also help Kenya reduce debt vulnerabilities by pursuing an income-driven fiscal consolidation plan, which means Kenya will seek to generate additional income through taxes rather than debt. The third, which should receive the most attention, is to finance structural and governance reforms in troubled SOEs. It will also strengthen the monetary policy framework and support financial stability.

Extended credit facility

In a statement on Friday, the IMF said its board had approved the financing plan under the Extended Credit Facility (ECF) and Extended Finance Facility (EFF).

The ECF provides financial assistance to countries facing protracted balance of payments problems.

It was created under the Poverty Reduction and Growth Trust (PRGF) as part of a broader reform aimed at making IMF financial support more flexible and better suited to the diverse needs of developing countries. low income, including in times of crisis.

According to the Treasury, these cash shortages, coupled with the evolving nature of the Covid-19 pandemic as well as the instability surrounding the vaccine supply, require the government to have sufficient resources to carry out rapid targeted interventions.

“It is in this context that the government requested this disbursement program in order to cover these fiscal needs by providing the necessary additional resources,” Yatani said.

Between March 2018 and March 2019, the country borrowed around 858 billion shillings.

This translates to around 71 billion shillings per month. The year before, the country had increased its stock of public debt to about 45 billion shillings per month.

This means that in less than three years, Kenya has tripled its appetite for debt, putting it on the dangerous path of debt distress.

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