Recent events of delayed payments to government workers and allegations that the government printed KSh50 billion to service the KSh200 billion Eurobond debt borrowed in 2014 have raised questions that point to a government living beyond its means.
While the delay in paying workers, more so teachers and employees under members of parliament in constituencies may, on an ordinary day, be shunted as bound to happen once in a while, the government’s voracious appetite for debt even when the borrowed funds are being put to wanton misuse has angered many people.
The prevailing situation of a government cash-starved and trapped in debt has become worse with the low revenue collection reported in the first half of the 2015/16 financial year, a weakening Kenya shilling and costly domestic borrowing.
To finance the budget deficit in the current financial year, the government is looking to raise KSh75 billion (US $750 million) syndicated loan to eschew the prevailing high interest rates that are hovering at about 20 per cent in the domestic market. It is understood that the government is in talks with three major lenders, namely Citibank, Standard Chartered and Stanbic to borrow KSh75 billion (US $750 million) any time soon. At the same time, the government continues to borrow aggressively from the domestic market, having already floated KSh20 billion one year bond on October 26, 2015. It issued another bond in mid-October, which attracted a rate 21.498 per cent.
In September, the government offered a one-year treasury bond of KSh30 billion. The auction attracted a return of 19 per cent. This is besides the KSh5 billion bond targeted through M-Akiiba platform and which is expected to attract investors with as little as KSh 3,000.
Analysts agree that despite the government’s insatiable appetite for funds, turning to the international market may help calm down the interest rates fever in the domestic market and provide much needed support to the shilling due to foreign currency inflows. In the 2015/16 financial year, the government targets borrowing KSh219 billion, which analysts say is behind schedule.
The success of foreign borrowing may lead to a temporary reduction of pressure on local interest rates environment.
“However, we maintain our view that investors should be biased towards short-term fixed income instruments due to the uncertainty of the rate environment,” Nairobi-based Cytonn Investments said last month.
Further still, the government looks to borrow KSh340 billion from the international market this financial year. This borrowing is usually on concessional terms as it attracts relatively low interest rates compared to rates in the local market.
While some analysts such as Old Mutual’s Eric Munywoki believe that the government’s borrowing is currently within its means, a major challenge so far has been how the borrowed funds have been spent.
“What we are seeing is they are borrowing but we don’t see where this money is going. There are a lot of development projects that need to be commissioned but remain largely ignored. A lot of the borrowed funds are being channeled to recurrent expenditure and spending on other areas such as hospitality which are not very essential,” Mr. Munywoki noted.
Naturally, poor spending habits at both the local and national government levels defeat efforts by the Kenya Revenue Authority (KRA) in bringing more taxpayers into its tax bracket. KRA’s ambitious plan targets to raise the number of active Kenyan taxpayers to four million by the year 2018 from less than two million currently.
Despite efforts aimed at raising revenue, questions have come up by both the Auditor General and the Controller of Budget over corruption, poor spending or plunder of taxpayers’ funds. The Institute of Certified Public Accountants of Kenya (ICPAK) has lent its voice to the Auditor General’s protests regarding the poor spending of public funds at the two levels of government.
On October 14, ICPAK’s national chairman, Fernandes Barasa said that the public outrage that emerged after the release of the 2013/2014 financial year audit report by the Auditor General clearly showed there is a need to align accountability and performance in the public sector.
Similar cases of corruption and wastage of public funds continue to be reported by the Controller of Budget in her quarterly reports. In the recently released 2014/15 Report on Budget Implementation, the Controller of Budget Ms. Agnes Odhiambo noted persistent failure by the ministries, departments and agencies and the county governments to utilise funds for development with an absorption rate of 45.8 percent. These same entities were quick to gobble up funds meant for recurrent expenditurewith a record 89.7 per cent of allocated funds used up.
“While there was a dip in absorption of development funds, it is reported by the Controller of Budget that we grew our debt book by slightly over 20 per cent. We are wondering whether the growth in our national debt book would be in any way justifiable given the dip in absorption of the development budget,” Mr. Barasa noted.
Veteran columnist and consultant Kwendo Opanga believes that the sentiment in the country right now is that Kenya’s economy is headed down the wrong path. “What Kenyans are seeing are high interest rates, which are making borrowing far too expensive. What people are seeing is a government that spends, spends and spends. Then it borrows, borrows and borrows again, and, then, it spends, spends and spends again,” Mr.Opanga said in an open letter addressed to President Uhuru Kenyatta.
He argues that with persistent government borrowing, followed by poor spending and misuse of public funds, the ordinary person on the street will bear the greatest brunt of not only paying high lending rates, but also servicing a costly government loan.
“Mr. President, Kenyans are beginning to compare their country with Greece. In fact, some are saying that the government is broke and like the Greek one before the meltdown, it is living beyond its means,” he said.
Written by Joshua Masinde