Kenya: Puzzle of Sh1.2trn Loans Borrowed During Covid Year

Kenya has increased its public debt by more than Sh1 trillion in the year of Covid-19 pandemic after the government received the first instalment of the latest Sh257 billion loan from the International Monetary Fund last week.

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 shot up by 69 per cent.

In the eight months between March and November last year, Kenya had increased its stock of public debt by Sh971 billion under the cover of fighting the Covid-19 pandemic.

This translates to about Sh121 billion every month, a sharp rise compared to the Sh71 billion the country was borrowing per month on average in the year to March 2020, before coronavirus hit the country.

After the government updates its records with the new loans taken between November and March 2021, the stock of public debt is likely to hit Sh1.2 trillion in just one year.

Read: MPs raise country’s debt limit to hefty Sh9trn

To put this figure into context, it is enough to build three of the Standard Gauge Railway line that the Chinese built from Mombasa to Nairobi at Sh327 billion.

This increased borrowing is now no longer supported by the narrative that the Kenya Revenue Authority (KRA) is falling far below its revenue targets.

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

In his monthly tax update, KRA Commissioner-General Githii Mburu on Saturday said the tax agency has recorded the highest revenue performance rate since the beginning of the Financial Year 2020/2021 after collecting Sh144.6 billion in March 2021, surpassing its revenue target.

Mr Mburu said this is an outstanding performance compared to the month of February when KRA collected Sh127.7 billion, registering a performance rate of 105.1 per cent to surpass its February revenue collection target.

Revenue figures

Despite the slow economic progression, Mr Mburu said KRA registered an 11.2 per cent revenue growth– collecting a surplus of Sh6.6 billion in March 2021.

“This was the fourth month running that KRA posted an improved and above target performance since December 2020,” he said, bursting the narrative that his agency was doing badly, to justify increased borrowing.

The National Treasury has defended the excessive borrowing on shrinking revenues in the wake of the Covid-19 pandemic.

As soon as Covid-19 hit Nairobi last year, Kenya stepped on the borrowing gas pedal hard, 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, extending an immediate Sh6.8 billion support to the Health ministry for preparations and response as it retreated to consider a bigger loan.

Then its Bretton Wood sibling, the International Monetary Fund (IMF) came in second, advancing Sh78.3 billion to Nairobi to deal with the pandemic.

At the time, Kenya said it was expecting a major cash shortage due to the containment measures.

After IMF disbursement, the World Bank wired another Sh108 billion to the Central Bank of Kenya (CBK) as both budgetary support and extra resources to help fight the deadly viral infection.

That was not all. The African Development Bank also joined the fundraising effort, sending Nairobi an extra Sh22.5 billion boost as concessional loan.

Read: World Bank in fresh warning as Kenya’s debt hits Sh3.8 trn

The European Union topped this up with an additional Sh7.5 billion in form of grants.

In just under 60 days, Kenya had already secured Sh223 billion as part of its Covid-19 war chest.

This was before it launched other fundraising efforts from the commercial lenders at both local and international markets. It did not stop there, it also went out, seeking debt relief from the big lenders.

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

New IMF loan

On Friday, the IMF again approved a fresh Sh257 billion loan for Kenya through a 38-month programme at a time Nairobi is struggling repaying its mountain of debt.

The National Treasury says the first disbursement from the loan of Sh33.7 billion will happen immediately, while a second tranche of the loan of Sh44.2 billion will be released by June 30, 2021.

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

This comes at a time when a poll has revealed that a majority of Kenyans are angry about the government’s insatiable appetite for debt.

According to an Infotrak study on Kenyans’ perception on foreign debt, 81 per cent of the population is angry, fearful, or anxious because of the country’s ballooning debt, while 62 per cent do not approve of regular borrowing from foreign countries. Meanwhile, 52 per cent of Kenyans rate the government’s handling of its borrowed funds as poor, while 76 per cent believe Kenya gets most of her foreign loans from China.

The study also found that Kenyans perceive that the government keeps getting foreign loans because it keeps asking for them but also does not care about how the loans are used. “81 per cent of Kenyans feel either anxious, angry or fearful because of the level of the country’s debt,” Infotrak said.

But of real concern about the country’s foreign debt, 38 per cent of Kenyans are concerned that future generations will be riddled in debt for a long time, while 34 per cent believe Kenya will be unable to repay the debt and default, which would embarrass the country.

A further 24 per cent are worried that should Kenya default on the foreign debt, national and strategic resources and infrastructure facilities will be taken over by the external creditors.

Treasury says the latest IMF loan has four key deliverables among them scaling up the Covid-19 response in the immediate term, targeting the health and other sectors most impacted by the pandemic.

The loan will also help Kenya reduce debt vulnerabilities by pursuing a revenue-driven fiscal consolidation plan, which means that Kenya will seek to raise additional revenue through taxes as opposed to debt. The third, which is set to have the most attention, is fund structural and governance reforms in struggling State-owned enterprises. It will also strengthen the monetary policy framework and support financial stability.

Extended Credit Facility

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

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

It was created under the Poverty Reduction and Growth Trust (PRGT) as part of a broader reform to make IMF’s financial support more flexible and better tailored to the diverse needs of low-income countries, including in times of crisis.

Treasury says these cash shortages coupled with the evolving nature of the Covid-19 pandemic as well as the unsteadiness surrounding the supply of vaccines, require that the government be adequately resourced to make prompt-targeted interventions.

“It is against this background that the government requested this disbursing programme so as to cover these fiscal needs by providing the necessary additional resources,” Yatani said.

Between March 2018 and March 2019, the country borrowed about Sh858 billion.

This translates to about Sh71 billion per month. In the year before, the country was increasing its stock of public debt at about Sh45 billion every month.

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

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