Kenya Debt Abolition Network, 29 January, 2021
1.0 – INTRODUCTION/BACKGROUND
On 13 January 2021 the Kenya Debt Abolition Network (KDAN) which is a social movement of Kenyan individual and organization whose main aim is to call for Abolition of Kenyan Illegal, Illegitimate and Odious Debts through evidence based processes like Citizen Debt Audit and calling for public participation in the process of incurring Debts with support from the Committee for the Abolition of Illegitimate Debts (CADTM)1 hosted the Kenyan Debt Dialogue. The meeting was called on the backdrop the Kenyan increasing sovereign debt that has now reached a crisis level and has simply become unsustainable. The meeting was also motivated by the fact that despite the Kenyan debts being unsustainable, Kenyan government appetite for Debts seems to be increasing unmitigated.
During the Covid-19 pandemic period, the Kenyan debt situation worsened as the Kenyan government incurred more Debts in the name of responding to the Coronavirus Pandemic. Furthermore, Kenya is supposed to start repaying the Chinese Loans that was used to construct the Nairobi – Naivasha Standard Gauge Railway from January 2021 which is going to add to the Kenyan taxpayers’ burden. The loan is to be repaid in 30 instalments between January 2021 to July 2035. The loan maturity comes at a time when Kenya is facing a budget shortfall due to coronavirus and spiraling debt that has hit KES7 trillion or 62.5% of the economy. According Treasury’s Draft Budget Review and Outlook Paper, Kenya is expected to incur an extra KES 1.82 trillion in loans for the next two years i.e. up to June 2022 effectively pushing Kenyan Debt KES 8.06 trillion.
News that Kenya had bowed to International Monetary Fund (IMF) pressure to include KES 3.4 trillion parastatal and county loans as part of the country’s national debt2 just worsened the situation by exposing the Kenyan Counties as another frontier for the Debt colonization and capture. The move is set to increase the Kenyan Debt from the current KES 7 trillion to KES 10.4 trillion passing the KES 9 trillion set by parliament. This is not withstanding the fact that the Treasury’s Draft Budget Review and Outlook paper stating that Kenya expects to incur an extra KES 1.82 trillion before June 2022. The fear is that should the County be included as national debts, then the next step will be capture of the counties by the international creditors which might see them privatized just like some parastatals should the counties fail to repay the debts on time.
As this was happening, the Paris Club announced that they had entered a debt suspension agreement with Kenya. The Paris Club announced that it had agreed to offer Kenya a time bound suspension of debt service from 1 January 2021 to 30 June 2021 with a condition that the freed resources on this initiative will go to mitigate health, economic and social impacts of Covid-19 pandemic. China on the other hand through their embassy in Nairobi announced that China and Kenya were holding talks over debt service suspension.3 It is worth noting that debt service suspension does not address the debt crisis or the problem of incurring more debts as it simply postpones the problem. Furthermore, it does not address the legality, legitimacy and sustainability of debts which is key issue that KDAN is pursuing.
It is against such background that KDAN decided to host the fast part of a series of Zoom Dialogues that shall take place fortnightly with an aim of highlighting the Kenyan debt crisis and that shall ultimately plan actions aimed at calling for a Citizen Debt Audit aimed at leading to abolition of those portions of Kenyan debt that are illegal, illegitimate and odious. The Zoom dialogue was attended by representatives from Kenyan Peasants League (KPL) Turkana Bia Aloe Organization (TUBAE), Center for Rights Education, Governance and Democracy (CREGD), Wote Youth Group, Up and Front Jiinue CBO, Kangemi Grassroots Human Rights Movement, Kakamega County CSOs Network and Baringo County CSOs Forum all members of the KDAN.
Two meeting was structured into two sections with the first section being for presentations while the other section being for plenary. There were two discussants who made presentations on two different topics as follows; David Otieno the National Coordinator of KDAN on the Kenyan Debt Crisis – Building a Case for the Abolition of Kenyan Debt and Eliud Emery of TUBAE on the Devolution of Debt in Kenya – Potential for Capture of Counties?
The presentation focused on the legality, legitimacy, odiousness and sustainability of the Kenyan debt.
2.0.1 Illegal Debts
These are debts contracted in violation of domestic and international law or had conditions attached there to that contravened the law or public policy. For example, in Kenya, the Principles of Public Finance Management as under article 12 of the Constitution of Kenya is supposed to guide all aspects of public finance in the Kenya. Article 201 states that there should be openness and accountability, including public participation in financial matters. It also states that public finance system should promote an equitable society, and in particular ensure that the burden of taxation is shared fairly. Most importantly on matters borrowing, the article states that the burdens and benefits of the use of resources and public borrowing should be shared equitably between present and future generations, public money should be used in a prudent and responsible way and that financial management should be responsible, and fiscal reporting shall be clear.
The public borrowing needs to be audited based on the principles of public finance management. If any debt is incurred, contrary to the provisions of the public finance management and those in the Public Finance Management Act 2012, then such debts are considered Illegal Debts and must be abolished.
2.0.2 Illegitimate Debts
These are Debts with conditions and policy prescriptions that are grossly unfair, violate national laws or human rights standards, social justice or because the loan was not used for the benefit of the population or the debt was converted from private (commercial) to public debt under pressure to bail out creditors. Some conditions include, retrenchments, reduction on public and social expenditures, opening of borders, increased taxation, liberalization etc. They also include loans in which the lender is fully aware that the borrowing countries are unable to repay them without disrupting provision of basic social services. If any debt incurred has such conditions and policy prescriptions, that violate national laws and human rights standards then such debts are considered Illegitimate Debts and must be abolished.
2.0.3 Unsustainable Debts
These are Debts that cannot be serviced without seriously impairing the ability or capacity of the Government of the borrower State to fulfil its basic human rights obligations, including healthcare, education, water and sanitation and adequate housing, or to invest in public. Any debt and cannot be serviced without impairing the ability of the government to fulfill its basic human rights obligations are considered unsustainable and must be abolished.
2.0.4 Odious Debts
These are Debts incurred not in the interests of the people or the state but against their interest and/or in the personal interest of the leaders or persons holding power and the the lenders had foreknowledge, or could have had foreknowledge, that the funds concerned would not benefit the population. These are debts whose effect is to deny people their fundamental civil, political, economic, social and cultural rights. Some of these loans include loans that are used to buy arms, support wars, suppress expression of the people etc. If any debt incurred has effect that are likely to deny people their fundamental civil, political, economic, social and cultural rights then such debts are considered Odious Debts and must be abolished.
2.0.5 Treasury/Government Bonds
A Treasury/Government bond is a debt security issues by states for a specific period with the purpose of raising capital by borrowing. Bonds are sometimes sold at prices that is lower than its nominal value. For example, when a country borrows funds by issuing securities at face value of USD 100. The securities will likely be sold at USD 80 and the Bank issuing the Securities deducts their commission of maybe USD 15 meaning that the issuing country will get USD 65 while the interest will be paid at issuing value of USD 100.
In such a scenario, the Bond Holders who are mostly bankers or private investors are likely to make profit in scenarios where the borrowing country repays the loan regularly thereby making them possible for them to sell the bonds at a higher price. The banks selling the bonds will not run risk if debt is not repaid since it already deducts the commission by informing the borrowing country that it sold the securities at USD 65. On the other hand, the borrowing state will pay the loan at nominal value of USD 100 with an interest rate being charged at the original value of USD 100 despite only receiving USD 65.
The local ruling class benefits from issuance of bonds as it saves them from taxation by the state as without external debt, the state might be obligated to tax them as the low class is already overtaxed. Furthermore, the ruling class also purchase the Treasury Bonds at the international market earning them huge profits. The money raise for sale of bonds also empowers the state to buy goods from the local elite and ruling class who mostly imports goods from outside the country having the effect of killing the local investments.
From the borrowing government perspective, raising money from issuing bonds averts conflicts with the local elite as the only other option would be to tax them to bridge the resource gap. The external debt also facilitates government corruption thereby benefiting the ruling elite since foreign bankers are always willing to pay under the table commission in order to secure deals. In short, the ultimate looser in the whole bond issue business is the local citizen who is overburdened by high taxes for the country to be able to raise adequate resources to service the loans.
2.0.6 Kenyan Eurobond Issue
Kenya is not a stranger to borrowing using treasury bonds. Between 2014 and 2019, Kenya issued 6 Eurobonds some of which according to the Kenyan Government went to rolling over some of the existing National Debts. This literally means that Kenya sold the bonds to finance debts that existed. The first Eurobond worth $2.8 billion was issued in 2014 in 5 and 10-year tranches.
Kenya floated the second Eurobond in February 2018 at the London Stock Exchange (LSE) arranged by global lenders Citi, JP Morgan, Standard Bank of South Africa and Standard Chartered that raised $2 million (KES 202 billion) and attracting bids worth $14 billion (KES 1.4 trillion). The bond was issued in two equal tranches of 10 years at a coupon of 7.25% and 30 years at a coupon of 8.25%. Part of the money went to repay a syndicated loan of USD 370 that matured in June 2017 but was extended to April 2018.
On 15 May 2019, the Government of Kenya issued another Eurobond worth USD2.1 billion in two tranches of 7 years and 12 years at the LSE. This third issue was however, oversubscribed by almost 4.4 times raising a total of USD 9.5 billion distributed as follows; US$ 4.0 billion in the 7-year tenure and US$ 5.5 billion in the 12-year tenure.
2.1 Citizen Debt Audit
“ Debt cannot be repaid, first because if we don’t repay, lenders will not die. That is fore sure. But if we repay, we are going to die ” Thomas Sankara. “ A good question is half of knowledge .” Arab proverb
Citizen Debt Audit (CDA) involves questioning the legality, legitimacy and sustainability of a public or private debt with a view of shedding light on the debt system and breaking the debt repayment Taboo. CDA is technical tool to examine debt documents’ and their reasonableness and the appropriate presentation of the debt figures, as well their efficiency, effectiveness, and economy of their structures.
CDA is a political tool to answer some basic democratic needs by ensuring truth, transparency and popular control of the debt system so as to disclose the mechanisms that produce public debt through democratizing debt knowledge and mobilizing society. CDA can enable the illegitimate, unsustainable, and/or illegal part of the debt to be abolished.
In conducting a CDA, the following questions are necessary and should guide and define the audit:
• For what purpose was the debt incurred?
• Who decide to contract those Loans on behalf of people?
• Did the country receive the entire amount?
• Who are the lenders?
• Who holds the debt?
• Who has profited from this? (Banks, firms, individuals)
• What interest has been paid, at what rate?
• How have private debts become public debts?
• What is the portion of the state’s budget being used to service the debt?
• What were the creditors’ conditions?
• How does the state finance debt repayments?
• What are the social, economic, gender, regional, ecological effects of the loans and its
impact on peoples?
The first step of conducting CDA is to set up an audit committee whose main task is to stimulate social participation in researching the debt process and empowering society with knowledge of this financial reality. The audit committee should not be composed of experts only but also volunteers, students, workers, members of social movements and CSOs, trade unions, associations and farmers etc. The committee members should be independent without conflict of interests, especially in relation to the government, domestic financial sector and International Financial Institutions (IFIs).
The program for a CDA should include but not limited to the following:
• Reasons for the the CDA
• Overall and specific objectives
• Scope and period of the CDA
• Determination of the CDA working groups
• CDA implementation schedule
• Techniques to be applied in CDA
• Summary of evidence (findings) of the CDA
• Audit report including recommendations
Techniques used in a CDA include but not limited to the following:
• Analysis of documents related to the debt in question
• Investigation around the debt in question
• Verification of the documents available including asking questions to those concerned
• Review of all related documents related to the debt including interviews where
• Public hearing on the debt in question
2.2 Devolution of Debt in Kenya – Potential for Capture of Counties? – Eliud Emery
This presentation focused on the increasing trend of Kenyan Counties incurring debts and also on revelations that the Kenyan Government had bowed to the pressure from the IMF to include KES 3.4 trillion parastatal and county loans as part of the country’s national debt.4
This move is likely to expose the Kenyan counties to capture by IMF and other creditors to an extent of appointing administrators and placing them under receivership the same way Greece was placed under receivership.
Majority of Counties in Kenya have consistently failed to meet their revenue targets whose source has mainly been raising own resources using taxes, levies and fees. This implies that the debt burden will be passed to the National Government which in real sense means that it is the taxpayers who will dig deep into their pockets to support debt servicing.
With Kenya already struggling to service the current loans including to borrow more to service the existing loans, allowing the Counties to borrow more will expose the Kenyan Counties especially those with natural resources to privatization of mines, water sources, land, farming; privatization of county services and opening up of counties to Multinational corporations investments that shall in turn kill local industry and investments.
Currently, Kenya is undergoing a constitutional amendment drive under the Building Bridges Initiative (BBI) which among other things proposes increasing allocations to the counties from current 15% of the Country’s GDP to at least 35%. Questions arising are how the National Government will be able to raise extra cash to the counties while it has been unable to transfer the current 15% on time. More so on amendments to the CoK 2010 Constitution on Articles 220 (Form, Content and Timing Budgets), 221 (2) on Budget estimates and Annual Appropriation Bill, Article 223 (Supplementary Appropriations), Article 225 (Financial controls); Salaries and Remuneration Commission and Chapter 6 making public officers accountable.
The move could also see the National Government taking over management of counties that shall be unable to repay the loans in a similar fashion which the Nairobi Metropolitan Services was created ending up killing devolution.
3.0 – Recommendations
• Conducting fortnightly Zoom Dialogues on Kenyan Debt with a view of creating more awareness on the Kenyan Debt Crisis and planning popular actions against the debts
• Creation of KDAN Website where all information regarding all Kenyan Debts and those incurred by the Counties can be accessed by all and sundry
• To review all the Kenyan debts since independence and make them public on the KDAN website
• Conducting an assessment of County Debts incurred so far
• Advocating for formation of a Kenyan Citizen Debt Audit Commission to audit all Kenyan debts
• Producing assessment reports on specific debts that Kenya has incurred.
• Use the week before the International Women Day in March to raise issue of Microcredit and their relationship with the neoliberal policies of IMF and World Bank.
• To petition National and County Governments to provide details of all loans incurred based on the Citizen Debt Audit questions
• To follow up on the issue of Dominion Farms in Siaya County with the Siaya County Government
- About CADTM. Available From:<http://www.cadtm.org/About-CADTM> . [20 January 2021]
- Business Daily, Kenya Bows to IMF Pressure on Public Debt Disclosure. Available from:<https://www.businessdailyafrica.com…> . [20 January 2021].
- Citizen Digital, China says it is ready to help Kenya deal with its debt challenges. Available from:<https://citizentv.co.ke/news/china-…> . [20 January 2021].
- Ibid Note 2.