A KEEN EYE

Private interests go for broke- overrun IMF call for prudence

IMF and Treasury use data measures, which paint a rosier picture of Kenya’s economic well being

In Summary
  • Despite the bleak post covid economic reality facing key sectors of the economy, the budget has evidently been repurposed for private greed
  • African countries have been targeted by private capital seeking higher returns and secured on stringent lending terms, which are kept secret.
Graph showing Kenya's surging debt.
DEBT: Graph showing Kenya's surging debt.
Image: COURTESY

While Kenyans are off resting over the Christmas break, National Treasury mandarins are burning the midnight oil, putting in play a final onslaught on public coffers.

The exchequer is going for broke as it desperately seeks to fill a yawning budget gap fuelled by corruption leaden legacy projects, rising fuel prices and a deteriorating trade balance.

An important rule of play in the dictator’s handbook is to change the rules of the game to your advantage.

In this case, the IMF has engineered a shift in the measurement of debt sustainability away from the debt ceiling to a GDP debt anchor.

However, the IMF and Treasury use data measures, which paint a rosier picture of Kenya’s economic wellbeing and are significantly removed from the real economy measures used by the Central Bank.

This is very much like the exploitation of constitutional amendments to presidential term limits, to extend the term of the incumbent. Moi did it in 1992, as have his counterparts in Burundi, Rwanda, and DRC.

Kenya’s public debt situation is made worse by the fact that the larger proportion of our debt is foreign. In an apparent about-turn, the IMF recently announced that Kenya would once again be borrowing on the Eurobond market.

Eurobonds have become a quick fix due to the relative ease of posting the bonds and the absence of checks and balances.

However, Eurobonds are costly and risky especially at this time when exports as a share of GDP have declined reducing Kenya’s foreign currency earning capacity.

African countries have been targeted by private capital seeking higher returns and secured on stringent lending terms, which are kept secret.

Underwriters of the Eurobond also include some local banks with high-level political connections, and so there is a perverse conflict of interest driving the appetite for Eurobonds.

The final weapon in the administration's binge borrowing strategy is the faulty narrative that Kenya has to borrow to finance infrastructure lead growth.

This narrative overlooks the question of the prudence of the investments we are making and has resulted in investments without proven developmental impact or financial viability, many of which are subject to Auditor General queries.

One dubious example of budgeted corruption is the annual bailouts to mismanaged state-owned enterprises.

The 2019/20-audit report flags illegal outstanding obligations held by Kenya Airways (76B), Kenya Electricity Generating Company (43B), KPA (34B) all institutions, which are marred by allegations of conflict of interest and mismanagement.

Going by the IMF’s latest report, it appears the private interests in Kenya Airways are too powerful for the bank to stand up to, and in an incredulous suggestion the IMF has proposed that the government take over Sh93.5 billion of KQ’s Debt with a $1billion investment, no doubt structured by the IMF and its financial partners.

On a related note, the IMF’s second milestone report highlights beneficial ownership information as a pending issue but recommends continued release of funds irrespective.

This is IMF’s polite way of saying, we know you are stealing the money we lend you, but we are going to lend it to you anyway.

Despite the bleak post covid economic reality facing key sectors of the economy, the budget has evidently been repurposed for private greed, in cahoots with a spineless Treasury, a plaint parliament and a co-opted IMF.

The inevitable consequence of irresponsible borrowing and spending on unproductive investments steeped in corruption, and the use of overinflated economic figures is a budget deficit, which the administration has routinely overshot by between 25 to 100 per cent every year since 2014.

The shortfall has been met by increased taxation despite the reality that excessive taxation measures have had no effect on tax revenue and are having adverse effects on the economy due to overburdening taxpayers.

Yet the IMF and government of Kenya persist with their failed fiscal policies, and more taxes are expected in the New Year.

Whereas the IMF-Kenya fiscal consolidation program has some positive aspects, it fails to address budgeted corruption that has driven the debt crisis in the first place.

It also employs misplaced policy proposals, which are simply not working.

Unfortunately, parliamentarians are unable to see beyond the political interests of the tumbocracy, and the business sector has been lulled into acquiescence through the dishing out of presidential awards, appointments and the promise of government contracts.

For its part, the IMF has entered the realm of predatory lending, and arguably Kenyan citizens are not bound to repay loans advanced to a government intent on theft.

The writer is the National Coordinator at The Institute for Social Accountability (TISA)