- Speaking Wednesday during the Moody’s fifth Annual East Africa Summit in Nairobi, Dr Patrick Njoroge warned that the country cannot afford to take more loans.
- Financial expert and CEO of Rich Management, Aly Khan Satchu said if the country did not check its borrowing spree it risked going down Sri Lanka’s path.
- Kenya’s largest infrastructure project since independence, the Standard Gauge Railways, for instance, will take at least three years before it breaks even.
Kenya’s Central Bank Governor has raised a red flag over the country’s growing appetite for loans
Currently every Kenyan owes the lending institutions at least Sh110,000.
Kenya’s central bank governor has raised a red flag over the country’s growing appetite for loans.
Speaking Wednesday during the Moody’s fifth Annual East Africa Summit in Nairobi, Dr Patrick Njoroge warned that the country cannot afford to take more loans since mega infrastructure projects that are undertaken by the government were not making any money to repay debts.
Dr Njoroge added that the State had to abandon the model of borrowing and let the private sector drive the economy.
“We have less headroom to borrow and we are running out of space. We need to look at the public-private partnership and build operate and transfer models,” said Dr Njoroge, according to a local daily.
Financial expert and CEO of Rich Management, Aly Khan Satchu who was in attendance echoed Njoroge’s sentiments and said if the country did not check its borrowing spree it risked going down Sri Lanka’s path and turning most of the mega infrastructure projects which cost taxpayers billions into white elephants.
“We have had 15 per cent rise in debt over the past few years but what is the return? In fact, it is negative, infrastructure is costing us money. We do not have to look very far, Hambantota port in Sri Lanka is gone,” said Aly Khan Satchu.
Kenya’s largest infrastructure project since independence, the Standard Gauge Railways, for instance, will take at least three years before it breaks even, according to Kenya Railways Corporation Managing Director Atanas Maina.
And until then the Government is sinking in more money to run it.
“Any business takes about five years to break even and we are targeting three. We want to have a surplus by five years,” said Mr Maina.
Mr Maina could not, however, provide the exact cost-plugging the government was doing because factors keep changing, citing the number of trains they are running, which will soon grow to seven, as an example.
At $5.6m per kilometre for the track alone, Kenya's line cost close to three times the international standard and four times the original estimate.
Kenya with Chinese loans has also constructed miles of tarmac roads but the Road Maintenance Levy factored in retail fuel prices has not been adequate to cater for road repairs, and hence the government is planning to start charging motorists for use of major trunk roads by setting up the toll stations along them.
Kenya is also paying billions of shillings for over-capacity and guarantees to firms for idle plants, such as Lake Turkana Wind Power.
The country has already been fined Sh5.7 billion ($55m) for the delays of the high-voltage line (400 kilovolts) and the ministry of Energy early this month said further delays beyond June would attract a Sh1 billion ($9.7m)fine monthly to be absorbed by taxpayers through their power bills.
In a bid to avert further costs, Kenya has awarded a consortium of Chinese companies a Sh9.6 billion ($93m) contract to complete the transmission line linking Lake Turkana Wind Power to the national grid by August 31.
Despite all these warnings, Treasury has continued to run huge deficits and targets to borrow Sh562.7 billion in the current financial year.
The government insists Kenya’s debt currently ranked the 5th highest in Africa and standing over Sh5 trillion, 60 per cent of the GDP, is still manageable, maintaining that the tipping point is 74 per cent.
“If we are talking about 74 per cent of the GDP are we deluded? We are extremely fortunate that the shilling strengthened because of growth in remittances,” said Mr Satchu.
According to Treasury documents tabled in the National Assembly, public debt stood at Sh4.9 trillion as at June 2017, but by February this year, the country had borrowed another Sh220 billion largely for infrastructure development and electricity connection, effectively pushing Kenya’s public debt to past the Sh5 trillion mark, meaning that every Kenyan now owes the lending institutions at least Sh110,000.
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