Responsible Borrowing Key to Redressing Rising Public Debt
By Tony M
News that credit rating agency Moody’s has downgraded Kenya’s creditworthiness from B1 rating to B2 has struck at a wrong time when Treasury is seeking to plug budgetary deficits occasioned by a Sh 40bn shortfall in revenue targets in the last two months of this financial year.
World acclaimed agencies such as Moody’s, Fitch and Standard and Poor’s plays a significant role in rating a debtor’s ability to pay back debt by making timely interest payments and the likelihood of default. Their assessment covers the economic conditions obtaining in a given country including the volume of foreign, public and private investment, foreign currency reserves, political and macroeconomic stability as well as existing debt levels.
For keen observers, this has not come as a surprise. All along there have been indicators towards a deteriorating economic environment where the ruling elite have not practiced judicious borrowing. As at June 2017, Kenya’s debt burden had risen to 56.4 per cent of GDP up from 40.5 per cent five years ago. The long drawn political contest has correspondingly aggravated the already battered economic environment.
Borrowing in its very nature isn’t a bad undertaking provided the function for what the funds are being borrowed for is economically viable to stimulate the economy or has the ability to repay the debt. For the past four years the Jubilee government has raided the international market to raise funds for infrastructural development. The government’s soft underbelly on how it expends these resources for meaningful development has been exposed. We have seen accountability issues being raised on funds such as Anglo Leasing, Eurobond, Chinese loans on Standard Gauge Railway among others.
Poor utilisation and embezzlement of funds has often left the taxpayers grappling with a burden of meeting obligations that didn’t benefit them. Up to date, Kenyans are still paying for phantom projects such as KenRen Fertilizer Company, CID forensic laboratory and Galana Kulalu food project.
Moody’s action to downgrade the country’s rating has a potential of rolling back gains in the economic arena as this will lead international lenders to be wary of our ability to repay loans so far advanced. For those intent on financing Kenya will do that cautiously and at higher interest rates. The flipside of this will be an active government competing for commercial loans in the local market. Banks are always accommodative in financing governments than other borrowers. This in turn will crowd out the small scale borrowers who are the engine of our economy from the domestic market.
Regrettably Parliament has inexplicably failed on its core mandate of oversight on this subject. The Budget and Appropriations Committee has a constitutional mandate of summoning the Cabinet Secretary for Finance to table the status of our indebtedness, purpose of the loans procured, strategies and status of servicing the current public debt. It is a cardinal responsibility the sovereign representatives of the people have abdicated. Had this been done as provided for in law, perhaps Moody’s rating could have taken an upward trend of A1.