Hey
@wrongturn,
@Mwalimu-G The Newyork Times is compromised.
Behind the Unrest in Kenya, a Staggering and Painful National Debt
Kenya, the fastest-growing economy in Africa, is on the brink of a fiscal calamity. Across Africa, nations are spending more on interest than on health or education.
The immediate trigger for the raging protest that gripped Kenya’s capital on Tuesday was a raft of proposed tax increases — additional shillings that ordinary citizens would owe their government. The underlying cause, though, are the billions of dollars their government owes its creditors.
Kenya has the fastest growing economy in Africa and a vibrant business center. But its government is desperate to stave off default. The country’s staggering $80 billion in domestic and foreign public debt accounts for nearly three-quarters of Kenya’s entire economic output, according to
a recent report from the United Nations Conference on Trade and Development. Interest payments alone are eating up 27 percent of the revenue collected.
The Kenyan president, William Ruto, had promoted the tax bill as necessary to avoid defaulting on the country’s debt, but the violent reaction to Parliament’s approval prompted Mr. Ruto to
abruptly reverse course on Wednesday and reject the legislation he had asked for. “Listening keenly to the people of Kenya,” he said, “I will not sign the 2024 finance bill, and it shall subsequently be withdrawn.” He
proposed a 14-day period of discussions to chart a new economic course.
Mr. Ruto’s turnaround may have temporarily quieted protests, but it leaves the country’s finances more precarious than before. Just two weeks ago, the International Monetary Fund and Kenyan authorities had reached an
agreement on a package of comprehensive reforms and tax increases needed to get the country on a more stable financial footing.
The policy review, required when the I.M.F. lends money to distressed nations, warned of a “significant shortfall in tax collection” and a deteriorating fiscal outlook. I.M.F. lending to the troubled East African nation now totals $3.6 billion.
The type of debts that are causing misery in Kenya can be found across Africa. More than half the people on the continent live in countries that spend more on
interest payments than they do on health or education.
“The kids in this generation that won’t have education today are going to be scarred for life,” said Joseph Stiglitz, a former chief economist at the World Bank. He noted that there had been increasing evidence that “countries who go through a crisis don’t recover — maybe ever — to where they would have been.”
The global debt crisis is the relatively bland label used to describe the brutal loops of
unsustainable borrowing and bailouts that have long ensnared developing nations.
In Kenya’s case, its government took out vast loans after a period of economic expansion in the early 2000s to cover the costs of infrastructure projects, including roads, railways, massive dams and rural electrification. This latest global debt crisis cycle, however, which is considered to be the worst on record, was precipitated by events far beyond any single country’s control.
The deadly coronavirus pandemic shuttered already fragile economies. The sudden need to provide vaccines, medical care, protective clothing to hospital workers and subsidies to people unable to afford food or cooking oil further depleted government bank accounts.
A war between Russia and Ukraine along with sanctions imposed by the United States and its allies caused global food and energy prices to soar. The wealthiest countries then corralled spiraling inflation by raising interest rates, causing debt payments to balloon.
On top of those woes, recent
floods in Kenya destroyed infrastructure and agricultural land and displaced thousands of people.
M. Ayhan Kose, deputy chief economist at the World Bank, said this month that “40 percent of developing countries, in one way or another, are vulnerable to a debt crisis.”
Finding a solution to the current debt trap that poor and middle-income nations find themselves in is harder than ever.
Thousands of creditors have replaced the handful of big banks in places like New York and London that used to handle most countries’ foreign debt. One of the most consequential new players is China, which has been lending billions of dollars to governments in Africa and around the world.
Starting over a decade ago, China elbowed its way into the ranks of major lenders to emerging nations and the size of its total loan portfolio now rivals the I.M.F. and the World Bank.
Altogether, Nairobi owes $35 billion to foreign lenders. The World Bank is the country’s largest creditor.
At the end of 2022, Kenya owed at least $6.7 billion to China, according to the I.M.F. It owed another $7.1 billion to bondholders, $3.8 billion to industrialized countries, $3.5 billion to the African Development Bank and $1.9 billion to international commercial banks.
To avoid default, countries like Kenya are compelled to borrow even more money, only to find that their total debt burden grows even heavier. And the bigger the debt, the less inclined lenders are to offer additional financing.
China has cut back its lending in the past several years, after concluding that it was taking too many risks by lending to low-income countries. It has collected on previous loans and has issued fewer new loans.
It is not the only player to pull back from Kenya. Japan and France as well as big commercial banks in Italy, Germany and Britain have also trimmed their exposure.
This month,
Pope Francis convened a
meeting at the Vatican and called for debt forgiveness and a rethinking of the world’s financial architecture to manage the growing crisis.
Unmanageable debt, he said, robs “millions of people of the possibility of a decent future.”
It took
Zambia four years to work out a deal with its creditors after it first defaulted.
Ghana, after defaulting on billions of dollars of debt last year, reached an agreement only this week with private creditors to restructure $13 billion worth of loans. And
Ethiopia is struggling to work out an agreement.
In February, Kenya
paid more than 10 percent on international bonds to have the cash to cover a payment for a $2 billion Eurobond from 2014 coming due this month.
The World Bank,
the I.M.F. and the African Development Bank have all offered lifelines and increased their lending to Kenya to fill the gap when no one else would. But they, in turn, want the government to take steps, like raising taxes and cutting spending, to stabilize the country’s finances. In a nod to the toll such belt tightening would require, the recent
agreement with the I.M.F. noted that the country also needed to strengthen its social safety net.
“How do you fill that tax revenue void?” said David Shinn, a former U.S. foreign service officer in Africa and a lecturer at George Washington University’s Elliott School of International Affairs. “When you borrow money at an even higher rate than what you’re paying off, you’re digging an even deeper hole.”
In May, Mr. Ruto said he was confident that Kenyans would eventually come around to supporting his actions. “I have been very candid that I cannot continue to borrow money to pay salaries,” he said in an interview. “And I have explained to the people of Kenya that we have a choice either to borrow money or to collect our own taxes.”
As this week’s protest illustrated, that choice does not seem to be one that the public is so far willing to accept.
