1. With Ghana, once an African giant now under intensive care supervision by the International Monetary Fund (IMF), Mozambique’s IMF support package is under suspension, and many African countries hit by the declining commodity prices looking for international relief to avoid defaulting on concessional and commercial loans, where doe Kenya which has applied for standby loan facility stand in the debt distress scale?
- Kenya has maintained a track record of prudent economic management with the aim fostering an inclusive and stable growth under a sustainable debt path.
- Kenya has successfully implemented appropriate economic policy and financial programs supported by the IMF under Poverty Reduction and Growth Facility (PRGF 2004 – 2007); Exogenous Shock Facility (ESF 2009 – 2010); and Extended Credit Facility (ECF 2011 – 2013), 12-month Stand-By Arrangement (SBA)/Standby Credit Facility (SCF) (Feb 2015 – March 2016) and now the extended 24-month Stand-By Arrangement (SBA)/Standby Credit Facility (SCF) approved in March 2016.
- These Stand-By Arrangements are precautionary and have helped Kenya anchor macroeconomic management and reform agenda. The support by the IMF in approving an extended facility with more than double the amount of access is a strong show of confidence in our macroeconomic management and the capacity of the economy to pay our loan obligations and is a strong and positive signal to both foreign and domestic investors.
- The economy continues to maintain a strong growth momentum. In 2015, the economy grew by 5.6 percent up from 5.3 percent in 2014 and is projected to grow by 6.0 percent in 2016. Already, Q1 of 2016 was 5.9 percent. This performance is way above the average growth for Africa which was 3.5 percent.
- We shall continue to implement and maintain the necessary business climate for the private sector to thrive.
- Kenya’s reputation has been strong. The Country has been rated B+ with a stable outlook. In addition, Kenya tops other Sub-Saharan Africa countries as the highest rated country in terms of the quality of our policies and institutions under the World Bank’s Country Policy and Institutional Assessment (CPIA) by scoring a rating of 3.9 for the last four years.
- Kenya is also in the strong position of being a diversified economy and therefore far less susceptible to commodity shocks.
Kenya has the added advantage of also being self-reliant for its operational budget with development partners mainly funding our development budget. This gives Kenya wider latitude to weather external shocks as its own government budget does not look to external sources in the first instance.
- While the quantum of debt is important, its composition (mainly concessional - meaning it has a low interest rate and very long repayment terms regime) and its application – that is, it is incurred mainly to fund infrastructure gives it very good prospects of boosting economic growth in the medium to long term. By CPIA index standards, Kenya’s debt level should be a concern only when it surpasses 74% of GDP.
Incidentally many advanced economies have much higher debt-to-GDP ratios Japan = 249.3%; UK = 89%, France = 98, USA = 107%, Italy = 133%, Spain = 99%.
2. Some economists say our debt now surpassing Sh3 trillion is said to be healthy others believe we are at risk, what do you think?
• Debt in nominal terms might appear to be rising but remember the economy is also growing and therefore, as a ratio to GDP, Kenya’s debt is still low. When viewed from a Present value of GDP perspective, the story becomes more interesting as the ratios are even lower and comparable with internationally recognized thresholds. These ratios continue to show that our public debt is within sustainable levels for a country rated as a strong policy performer.
• The baseline public debt path remains consistent with the EAC convergence criteria (deficit and debt) and below the relevant public debt benchmark.
• Further, the external debt sustainability indicators illustrates that Kenya faces a low risk of external debt distress. This is attributed to the high level of concessional loans in its current external debt portfolio and the positive outlook of its other macroeconomic indicators.
3. Even though debt ratios are below 50 per cent of GDP, does the current debt burden hurt our future the development agenda?
• No, our current debt burden does not hurt our future development agenda - if anything - it helps it because it has been strategically deployed on heavy investment in economic assets such as roads, railways and energy projects all of which are the bedrock of strong economic growth.
• The ongoing and massive investment of our road network has and can be expected to continue to have a significantly positive knock-on effect on our productivity and with it increased economic activity in the country.
• The Completion of the SGR project will also significantly lower the cost of doing business by providing to the private sector with a state-of-the-art rail system as a more efficient transport alternative for moving mass cargo not to mention its impact on regional trade.
4. Are we possibly heading the Ghana way?
• No. We are not heading the Ghana way. As explained in question one, our economy is growing strongly. The economy is well diversified and we do not rely on only one main source of revenue.
• Kenya is not a heavily commodity-dependent economy. By having a diversified economy, Kenya has insulated itself well against the kind of volatility Ghana, South Africa and other African economies have experienced.
• Our investments in infrastructure have gone further to support our diversified economy in that as economic benefits begin to accrue, they will be spread across a wider spectrum of sectors thus significantly reducing the risk of a Ghana–type debt squeeze.
Incidentally, the positive impact this diversification has brought to Kenya can be measured tangibly in the relatively high confidence international bond investors have towards Kenyan fixed income paper when juxtaposed against other African sovereigns in the market.
• Even as Kenya continues to proactively manage its debt and invest in infrastructure, it also finds itself in the fortuitous position of anticipating growth from new sectors following discoveries of natural resources such as oil and mining. Thus, alongside our strong macro-economic management, Kenya can look forward to additional revenue sources to both augment our diversified economy and as our GDP grows, reduce our relative debt commitments as a share of our expanded and growing GDP.
5. Why do you think Kenya has had an increased appetite for Chinese loans when they are obviously more expensive?
They are not necessarily more expensive when viewed from a conversion-to-benefit perspective. A feature of the Chinese’ modus operandi you may have noticed is how quickly they can deliver the economic asset to specifications. This has meant that the asset’s cost is partly mitigated by how quickly the loan converts to economic benefit from the use of the created asset. A good example of this is the rapid construction and likely completion (ahead of schedule) of the SGR project. This should come on-stream on time at about the time we begin to repay the loan thus partly offsetting the repayment by accruing economic benefit in terms of economic growth and wealth creation at the same time. This has not always been the case in the past where project delays and procedural bottlenecks have often led to stalled projects that cancelled any potential economic gains.
6. When the Eurobond debts mature, do you think Kenya’s repayment will be strained and how can the country avoid this scenario?
• Firstly, Kenya can afford to meet the payment when it falls due from its resources.
• Secondly, Kenya has the option as most countries to also re-calibrate its repayment schedule through perfectly acceptable market operations to spread these repayments over a longer period.
• Thirdly, Kenya’s economic growth is expected to deliver gains in government revenue which will further mitigate the impact of this obligation.
Kenya can therefore easily manage this situation from any or all of the above options.
It is also important, to remember that taking a debt is not of itself deleterious, it is how one spends it that matters. In this, Kenya is singularly focused on increasing its stock of infrastructure assets.
7. With China expected to continuously freeze her expansion , doe that spell a shaky future considering the growing ties Kenya is making with the Country?
• China’s expected contraction will no doubt challenge Kenya’s policy makers to re-examine their options. However, it is worth remembering Kenya has many development partners and is aggressively expanding its commercial and trade outreach.
This coupled with the earlier mention of the new sectors to be added to our economy – namely: oil and mining; and, our diversified economy all mean that Kenya – among its African peers – is well placed to weather changes to the global dynamics of change including Chinas’ change of pace. Our ties with China will remain strong and continue to grow even through these changes.