Since Kenya issued its first sovereign bond in 2015, the question of whether it was the prudent action to take remains, besides the unresolved issues of whether the full proceeds of that bond found their way into the country and how the money was spent.
The government had many arguments going for the Eurobond, not least those by super optimistic Africans who had worked with investment banks, that the sovereign bond was the way to go because overdependence on bilateral loans and aid from other sovereigns was “dead aid.”
A fortnight ago, Kenya again “celebrated” the second issue of a Eurobond worth $2 billion which, Kenyans were informed, was oversubscribed sevenfold.
Between the two Eurobonds, the country has borrowed syndicated loans from commercial lenders and other loans from development banks, including the China Development Bank Corporation, the East & South African Development Bank and the Africa Export Import Bank; and several consortia of banks.
These loans total a few billions of dollars and the government has stated that some were borrowed to repay earlier ones.
Opinion on whether this spate of borrowing is prudent is divided. However, students of economic history will agree that the concerns as to whether the government’s appetite for debt from commercial banks is prudent are not altogether unfounded.
Last week’s statement by Treasury Cabinet Secretary Henry Rotich to parliament that the government is facing financial challenges is reminiscent of Latin American countries in the early 1980s.
In August 1982, Mexico’s finance minister declared that the country could no longer service its debts and sought a moratorium and new loans so that it could meet its earlier obligations.
Like Kenya, Mexico had ditched public institutions like the World Bank, in favour of obtaining loans from private lenders in the form of sovereign bonds.
Just like in Kenya, the funds were used mostly for infrastructure. Mexico and other Latin American countries in similar situations quadrupled their external debts in 10 years.
Kenya may not have quadrupled its debt but its indebtedness to foreign creditors has increased considerably over the past six years.
More recently, Greece’s economic problems could serve as a lesson for Kenya.
While the economic problems of Greece are often blamed on the global economic and banking crisis of 2008, the country had internal financial problems too, including unsustainable public debt levels, high public wage bill, a decline in revenue collection occasioned by massive tax evasion and or exemption — all of which exist in Kenya.
Also, Mexico and Greece were equally optimistic that they could pay off the debt and that incurring sovereign debt was for the good of the country. It did not turn out that way.
Kenyans must ask questions that will seek assurances that the consequences of the Mexican and Greek borrowings will not befall the country.
Transparency on the terms which the sovereign debt is incurred must be made public, contrary to Treasury’s insistence, against the law, that the prospectus used to raise the money is a private document.
Parliament too, as the body charged with government oversight needs to do its work and ask the right questions.