The National Treasury building in Nairobi. FILE PHOTO | NMG
We are truly in the middle of a debt trap. In an interview with
Reuters this week, Treasury secretary Henry Rotich disclosed that Kenya
has no choice than to issue a Eurobond to repay a $750 million (Sh77
billion) loan, which the government contracted from a syndicate of banks
in October 2015. We are in a situation where the government has now
resorted to borrowing from Peter to pay Paul.
I must
say that I found some of the statements made by the minister in the
interview revealing. First, he disclosed that even though the $750
million syndicated loan was due on October this year, the government had
been forced to negotiate with bond holders to extend the maturity by
six months to April 2018.
Secondly, Mr Rotich revealed
that bond holders holding 10 per cent of the issue had flatly refused to
extend maturity of the loan to April, forcing the government to fork
out the money to pay them.
Clearly, our credibility in
the eyes of international credit markets has been dented by this
transaction. In international capital markets, your standing in the eyes
of creditors is tarnished the moment you start negotiating debt
rescheduling and begin pleading for extension of maturity.
As
things stand, we are more or less treated in technical default. It is
not a good place to be because, over the decades, Kenya has prided
itself on ability to honour its obligations to commercial creditors.
But
so what if Kenya was to be deemed to be in technical default? Whenever a
sovereign’s credit rating is marked down, it affects borrowing costs
for everybody and– therefore - increases the cost of doing business in
the economy.
Whichever way you look at it, we are deep
in a debt trap- constantly borrowing more money to service older loans.
Indeed, it appears that we are approaching a point where all the loans
we borrow from international markets will now go into repaying debts
instead of being deployed into infrastructure spending.
While the minister can take solace in the fact that he has
managed to convince bond holders to postpone repayment of the $750
million syndicated loan to April next year, it is just but a temporary
relief.
In the coming months, things will not be easy
for him because an IMF stand-by facility of $1.5 billion contracted in
March 2016 will also be coming due for retirement the very same month he
will going to the market to raise money to repay the syndicated loan.
A
year later, in March 2019, two more syndicated loans amounting to a
total of $1.05 billion will become due. They include $250 million from
PTA Bank and $800 million from a syndicate of Citi, Standard Chartered
and Standard Bank SA, both contracted in 2017.
A few
months later, the ghost of the 2014 Eurobond will be coming back to
hound the government since part of that controversial Eurobond- an
amount of $750 million- matures in June 2019.
And
the rate at which we have gobbled up Chinese loans, especially for the
standard gauge railway (SGR) projects, is simply frightening.
We
borrowed a whopping $ 3.8 billion for the section between Mombasa and
Nairobi. Then we hurriedly signed off another $1.5 billion for extending
the line to Naivasha.
We have signed a commercial
contract with a Chinese railway contractor to allow us access to another
$5 billion in Chinese loans for the extension of the railway from
Naivasha to Malaba.
In total, we are borrowing a
massive $10 billion from the Chinese to fund the railway from Mombasa to
Malaba. That amount is nearly 15 per cent of our gross domestic
product.
The
servicing of the $3.8 billion Chinese loans borrowed to fund the
Mombasa-Nairobi section of the SGR is expected to kick in this financial
year. Do we have the right to saddle unborn generations with such huge
loans?
Until 2006, only South Africa had issued a
Eurobond in the whole of sub-Saharan Africa. Like us, Many African
countries have since jumped onto the bandwagon.
I like
the way Nobel laureate, Joe Stiglitz, posed the question in a recent
article: ‘’Are short-sighted financial markets working with
short-sighted governments to lay the groundwork for the world’s next
debt crisis?” I rest my case
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