Finance Chair Points Finger at Uhuru's Borrowing for Kenya's Debt Problem

Kenya's debt crisis has its roots in the final year of former President Uhuru Kenyatta's administration which significantly increased borrowing in an attempt to secure a lasting legacy.

This borrowing spree has had far-reaching consequences with many of the funded projects now faltering or remaining unused. Kimani Kuria, Chairman of the Finance and National Planning Committee, has revealed the extent of the debt accumulated during Kenyatta's last year in office. Out of Kenya's total debt of Sh10.39 trillion, a substantial portion was borrowed under Kenyatta's administration for ambitious projects that have since become non-operational. Data from 2022 illustrates the severity of the fiscal mismanagement. In the months leading up to the General Election, Kenyatta's government borrowed at an alarming rate, securing six loans worth Ksh105 billion between May and August 2022.

This equates to a daily borrowing rate of Sh854 million from various lenders, including bilateral, multilateral, and commercial sources. The urgency to launch high-profile projects before Kenyatta's departure led to what Kuria describes as a mismanagement of resources. A prime example is the Standard Gauge Railway (SGR), a Sh477 billion project funded by Chinese loans that remains largely underutilized. The Sh150 billion Phase 2A from Nairobi to Naivasha, completed in 2019, has seen minimal use since its construction. Kenyatta defended his administration's borrowing during the Madaraka Day celebrations in June 2022, arguing that it was necessary to address infrastructure gaps and stimulate economic growth.

However, the legacy of these investments is now under scrutiny. Public debt surged from Sh1.89 trillion inherited from President Mwai Kibaki to an estimated Sh8.59 trillion by the end of Kenyatta's term, with critics arguing that this massive borrowing did not translate into sustainable or impactful projects. While Chinese loans play a significant role in Kenya's debt, they are not the sole contributor. Chinese lending accounts for approximately 64% of Kenya's current bilateral external debt and 17% of total external public debt. Multilateral borrowing, particularly from the World Bank, nearly doubles the bilateral total. Commercial external lending also contributes significantly to Kenya's debt problem with the current administration focusing on a $2 billion Eurobond maturing in June 2024.

Kenya's debt-to-GDP ratio has exceeded 76%, indicating a critical financial situation that demands immediate attention. Experts emphasize the need for strategic policy reforms and investments in key sectors such as manufacturing, tourism, and exports to stimulate economic growth and alleviate the debt crisis. The country's bad debt has reached a 15-year high of 15%, driven by high interest rates that prompt banks to increase loan loss provisioning as default rates rise. The gravity of Kenya's debt crisis is underscored by the fact that debt repayments now consume nearly half of the government's budget, limiting the country's ability to sustain necessary development projects. This financial strain has led to public protests and growing opposition to further borrowing from international institutions like the IMF.

Critics argue that previous loans have not been used prudently and that there is a lack of transparency and accountability in fund management. As Kenya grapples with this mounting debt crisis, calls for a broader review of the country's financial and constitutional frameworks have emerged. Kuria has suggested reassessing the 2010 Constitution to evaluate the necessity of maintaining all 47 counties and certain constitutional bodies. This proposed strategic realignment of priorities aims to address the country's financial predicament and pave the way for more sustainable economic growth.