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.
