Kenyan anti-debt squad "rattle" IMF

The Southern Bypass in Nairobi.
 Completed in 2015
Kenyan anti-debt warriors rattled the IMF last week with their protest over a US$2.35 billion loan to the country. The three-year program, to be released in tranches, will cushion the country as it grapples with the crisis induced by COVID-19. These include reduction of debt vulnerabilities, that is, to ensure Kenya does not default on previous loans among others.

The pandemic and its effects are a global reality and containment measures resulted in a self-inflicted economic pain, not just in Kenya, but globally. Some sectors such as air travel ground to a halt, the hospitality and entertainment industry simply collapsed, while others cut down operations.

All measures resulted in a huge threat to employment with retrenchments and furloughs. Air travel may never recover to its pre-pandemic levels due to the growing adoption of digital conferencing.

In effect, the economic downturn is no fault of our own. Tax revenues declined at a time when demand for government support rose sharply. The resulting financial gap forced governments to borrow and borrow some more. The health pandemic spawned an economic pandemic.

Outer ring Road Nairobi.
 This is where the loans go

This the reality anti-debt warriors refuse to acknowledge. This is not surprising as they have always protested debt escalation. Even when Kenya’s national debt was $1.92 billion dollars, there were similar, though subtle protests. And, they always take the cheap emotional stunt of assigning per capita debt commitment in Kenya. They never say anything about the benefits of the loans, assigning a per capita gain for each Kenyan.

The government is guilty of ineptitude in this case for it never provides any persuasive case for the debt to counter conspiracy theorists. It thus emboldened them to confront the IMF.

A few facts are necessary here. Kenya rebased its GDP accounting in 2012. At that time, GDP rose from US$41 billion to $50 billion. Kenya became the ninth-largest economy in Sub- Saharan Africa then. She entered the low middle-income status in 2014 with a GDP per capita of $1,083. By the end of last year, the GDP had almost doubled to US$101 billion, according to World Bank analysts. This means that on average, the GDP has been growing at a rate of US$6 billion a year over the last eight years.

We take the risk of declaring that the GDP is larger than currently estimated and should be rebased from 2009 to a more recent year say, 2017. This would capture new economic developments not captured in 2009. The rebase would not capture changing consumer tastes and preferences, it would probably assuage fears by anti-debt warriors that we are living beyond our means. Again here, I point an accusing finger at the government for being slow to update the economic status of the country.

 In 2012, public debt was a paltry $1.92 billion for a GDP then estimated at $41 billion. Today, public debt has risen to US$67 billion giving a per capita debt commitment of $1,425. For the sake of objectivity, GDP per capita on the other hand rose to $2,045 in 2019.

According to Bloomberg, Kenya is now the third-largest economy in Sub-Saharan Africa after Nigeria and South Africa. It has leapfrogged six other economies in eight years! The point here is the country has expanded in terms of the creation of wealth.

Is there a correlation, one may ask, between debt and economic growth?  Perhaps there is; Kenya and Ethiopia, the two largest economies in the East Africa region are also the most indebted with debt to GDP ratio of above 50 percent. Kenya is the largest economy in eastern Africa and among the fastest-growing economies in the region. East Africa region is the fastest-growing region in Africa. Both Ethiopia and Kenya drive the regional growth for they control 57 percent of the regional GDP. So is there a positive correlation between growth in debt and economic growth? The Mandarins in the public sector should answer.

Credible agencies have attributed rapid economic growth in east Africa to investments in mega-infrastructure projects- new Roads, Railroads, power lines, power generation projects, Seaports and related infrastructure, etc. These infrastructures have enabled the growth of productive sectors by lowering the cost of doing business- cutting travel time, ensuring a reliable supply of energy, etc.  In addition, the projects create jobs for thousands of jobless people who, in turn, consume domestic goods and services. Much of the debt was sunk into these projects.

When confronted with these facts, the keyboard warriors deflect them with complaints of “rampant corruption in the government.” We are not denying that there is pilferage of public funds. There is. However, that the anti-debt warriors reject the progress made, the gains made, discredits their angst.

Complaints of corruption are common in any new development project in east Africa. What is lacking is the evidence. The anti-debt warriors always refer to reports of pilferage by the Controller and Audit General, the government funds watchdog. In some cases, however, even the auditors have proven less than honest.

In other instances, corruption is a smokescreen for political goals, business rivalry, and vendetta. When the truth finally emerges, no one apologizes.

 A senior official in a multilateral agency recently told me that corruption is difficult in the development of infrastructure. “The product must be seen,” he argued. If that is the case, then the argument by “conspiracy theorists” falls on its face. 

Debt is painful, and citizens have a right to express their concern over growing public debt. The government is also duty-bound to defend its borrowing in terms that make sense to the public.

The IMF did a good job responding to the protestors that without the new debt, the government will have to cut operations, sack some employees, default on previous loans, and/or raise taxes.

The Anti-debt warriors have something in common with the Republican Party in the US. They all reject a large government even when it is inevitable. The GOP which thrives on “Zombie ideas” and lately, outright lies and conspiracy theories refused to vote for a $1.9 trillion relief package to jump-start the US economy ravaged by COVID-19, they are also refusing to vote in the $2.25 trillion infrastructure bill. Yet the US is in dire need of bridges, roads, broadband, and energy infrastructure.

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