DON’T LAUGH AT KENYA WE COULD BE NEXT

 Last week it was reported that the International Monetary Fund (IMF) had approved a $2.3b facility for neighbouring Kenya.

The loan was necessary because the Covid-19 related down turn in the economy has seen tax revenues fall and caused. As a result Kenya’s high debt servicing obligations are threatening to choke off the budget.

As it is now about two thirds of revenues go to debt servicing.

We are all in this Covid mess together, the difference though is that Kenya has a lot of non-concessional loans – loans taken at market rates, and in a financial crisis as they face now these become an onerous burden.

In the last few years Kenya has seen their budget explode due to increased infrastructure investment and a jump in public adminstration bill.

It was reported last week that Kenya's debt stands at Ksh7.2trillion (about sh240trillion) of which about 80 percent of it or Ksh5.8trillion was contracted over the last nine years.

"Critics of Uhuru Kenyatta's government complain that not only has the government contracted odious debt but a lot of it has found itself into the pockets of regime cronies...

But the big story real is that Kenya have now fallen back into the dreaded Structural Adjustment Programme (SAP), the favourite punching bag of arm chair revolutionaries up and down the continent.

In the 1980s and 1990s the SAPs came with conditionalities like growing tax revenues, cutting back on government spending and allowing the currency to float freely among other things.

The idea behind these conditionalities was to bring greater efficiency to the economy so that the distressed nations do not only get their economies back on their feet but are able to repay their debts.

The conditionalities were often unpopular because they entailed cutting or remobving altogether subsidies, laying off public servants and selling off government companies among other austerity measures.

Imagine someone comes to you in distress, debts are chocking him to the point that he is struggling to feed, house and cloth his family. Beyond your sympathy you want to make your loan to him is repaid. So as condition of lending him the money you will insist he rents a cheaper place, gets his kids out of their posh schools  and put an end to weekend drinkouts with the boys. If he doesn’t commit to the conditions he wont get your money.

"The truth is that often the conditionalities were used to save countries from themselves or more precisely from their extravagant governments...

It reminds me of the saying that, you are broke because you are spending on things that don’t make you money.

Kenyans took to social media streets last week to urge the IMF not to disburse the loan, which was essentially being contracted to pay for other loans.

It is a measure of how far we have come that we no longer criticise the IMF for doing their job, but are now turning the guns on our governments. Which is as it should be.

When things are good or even when they are not unaccountable governments begin to spend as if it is going out of fashion, building white elephants, indulging in questionable, unsustainable but populaist projects. In  so doing they stretch revenues and live their  respective countries exposed when a disaster like the covid-19 pandemic happens.

If you look around the hardest hit countries  have themselves to blame for their suffering.

To illustrate last year deep into the pandemic Singapore announced it would set aside $60b from its own reserves to the economy back on its feet. Some people will argue they are rich and can afford it but this did not come by accident. The small island nation – not as big as the Kampala metropolitan area, with a population of less than five million people has been very prudent with its budget and as a results have the reserves to tide them over the pandemic. They may still need to borrow but they will be a safer bet for the lenders than Kenya or some of us.

That is why as Ugandans we need to question when, new districts are formed, government indulges in flights of fancy like manufacturing cars, when we don’t have an agro-processing industry to talk of or giving tax holidays to con artists and charlatans when the productive sectors of the economy are going begging.

Currently we are spending three in ten shillings we collect on debt servicing. This will change as half of our budget is now financed by debt and debt servicing obligations will go up.

"Debt is not bad in itself but what we use it for. If we don’t spending it on things which will help the economy grow, like infrastructure it will soon become a lodestone around our necks dragging us down into poverty...

Already the IMF has made some recommendations around raising tax revenues, controlling government spending and addressing weaknesses in state owned enterprises, which will most likely include layoffs and privatisations.

For starters they are wondering (requiring?) whether the government can not double the VAT on fuel.