Despite fears over Kenya’s ability to service its mounting debt burden, the country has received approval from the World Bank for a $750 million loan. The request for the loan was made in March by Nairobi’s Treasury and it is reportedly meant for budget support.
In an announcement of its approval on Wednesday, the World Bank explained that the loan facility will aid the government’s effort to enhance competition and market transparency, reduce opportunities for corruption in agriculture and help farmers to achieve higher productivity as well as increase their incomes.
“Reforms supported by the facility include better targeting of subsidies for agricultural inputs to reach the intended beneficiaries (using e-vouchers and biometric digital identification); reducing inefficiencies and leakages in the procurement and marketing of fertiliser; and establishing a warehouse receipt system and a commodities exchange to help farmers get easier access to credit and to reduce post-harvest losses,” the lender explained.
The loan will also support the advancement of digitisation through the creation of the national digital ID and pushing for access of Internet services to all Kenyans, the World Bank said, adding that the facility will “enhance service delivery by the government to its citizens and reduce the need for face-to-face interactions and corruption opportunities.”
Kenya’s rising debt burden
Due to the growing deficit in the budget, borrowing has become one of the easiest ways for the Kenyan government to finance its swelling expenditure. The latest borrowing from the World Bank comes on the back of the recent $2.1 billion Eurobond issued by the East African nation, the third in five years.
“The Government of Kenya, acting through the National Treasury and Planning, has successfully priced a new $2.1 billion, dual-tranche Eurobond of 7-year and 12-year tenors on 15th May 2019 in London, United Kingdom,” a statement from the National Treasury stated. The two tranches are priced at 7 and 8 percent for the 7-year tenor and 12-year tenors, respectively.
The country’s inaugural Eurobond saw a total of $2.8 billion borrowed in five and 10-year tranches. The second came last year when the government got $2 billion in 10 and 30-year tranches. Since the first Eurobond was issued in June 2014, Kenya has raised in excess of $6.8 billion
Some of its sources of debt funding include the United States (U.S.), Europe as well as international capital markets where it issues debt instruments. And particularly, Kenya has increasingly been seeking loans from China to fund its infrastructure projects, leading to the Asian country surpassing Western countries to become Nairobi’s biggest lender. Kenya’s public debt crossed the $50 billion mark last September and there is a chance the latest loan will increase the figure beyond $54 billion by the end of 2019.
Dissenting voices
In response to the Kenyan government’s seemingly insatiable appetite for debt, there has been outrage from financial analysts, economists and policy experts. They believe the speedy borrowing hints at the rate of the country’s declining cash-flow situation typified by falling revenue and deteriorating debt service obligations.
Moreover, the country had a 10-year tradition of abstaining from World Bank loans. Former President Mwai Kibaki kept away from this type of credit, which the Jubilee administration has now revived.
An economic research organisation, the Institute of Economic Affairs (IEA) has warned that Kenya may be unable to service its debt obligations in ten years time if the borrowing spree continues. However, the Treasury has denied claims that the government is broke while defending the World Bank loan.
Meanwhile, Cabinet Secretary Henry Rotich said that the money will go towards the Big Four Agenda of the Jubilee Party in an interview with the Nation.
“This is a development policy operation by the World Bank. It is being given to many countries. Yes, it is budgetary support but we have had to sacrifice our own projects so as to turn it into budgetary support,” Rotich said.
The Secretary also noted that the loan does not compound the debt because the government has cancelled some projects. “If a project is slow… we say instead of losing the money let us convert them into budgetary support and implement,” he added.
Whether development policy or outright loans for budgetary support or development of infrastructural projects, Kenya appears unable to wean itself from over-reliance on debt. And sadly, there is no end in sight for the worsening debt crisis just yet as the Treasury announced earlier this month that it will explore five new bonds over the medium term in the coming fiscal year starting July.
