Seven months before the maturity of the 2024 Eurobond, Kenya’s debt situation has been likened to a “patient in an intensive care unit” where extensive efforts are being made to restore good health, but the situation remains a matter of life and death. 

In a series of tweets, posted on the eve of Mashujaa Day, the government’s chief economic advisor, Dr David Ndii, has laid bare the country’s dire financial state.

While shedding light on the extensive efforts being undertaken to forestall the imminent debt crisis, the veteran academic, now at the heart of the Kenya Kwanza administration’s Bottom-Up Economic Transformation Agenda, sounded a warning, “it’s going to be a tough couple of years.”

A decade-long foray into the expensive Eurobond market by the Jubilee administration between 2013 – 2022 saw the country’s debt balloon. Overall, Kenya’s debt currently stands at a gross total of Sh10.19 trillion as at the end of the last financial year.

Kenya faces a potential tipping point in June 2024 when a ten-year Eurobond, worth $2 billion taken on commercial terms from China to finance a new standard-gauge railway (SGR) matures.

Debt restructuring has not been touted much by Kenya with Dr Ndii cryptically tweeting, “Why are lenders so averse to haircuts if they are fully hedged? (a haircut is the reduction of outstanding interest payments or a portion of a bond payable that will not be repaid).

The Central Bank governor, Dr Kamau Thugge, told Reuters on the sidelines of the World Bank Group – IMF Annual Meetings in Marrakech, Morocco, in early October that Kenya plans to buy back up to a quarter of its $2 billion 2024 international bond before year-end. This will be done by securing new commercial loans from two regional policy banks, the Trade and Development Bank and the African Export-Import Bank.

Dr Thugge added that Kenya which appears to be in the clutches of the Bretton Woods institutions will “seek an augmentation of its IMF loan programme, which is undergoing its sixth review in November and also ask the World Bank to add to a $750 million loan planned for March.”

In 1996, the IMF and World Bank launched the Heavily Indebted Poor Countries (HIPC) Initiative to ensure that no poor country faces an unmanageable debt burden. Asked whether Kenya would benefit from such an initiative 27 years later, Dr Ndii was sceptical.

“Debt is more complicated now. Latin American debt resolution was a bailout to US banks by the US. The Least Developing Countries (LDC) debt was official development assistance (Paris Club) hence HIPC. Kenya’s debt is market debt, official development assistance and non-Paris Club (China). Which makes it fraught with conflicting interests and a collective action/free rider problem.”

Even as the year-old William Ruto administration seemingly faces the West and embraces closer ties with America, its begging bowl appears to be open to any donor. In his visit to Beijing in early October, President Ruto sought $1 billion more in loans from China. A move applauded by Dr Ndii who tweeted “I had a lot to do with the new Chinese loan and it is going to help a lot.”

Despite saddling Kenya with mega-debt, the SGR has failed to break even, prompting some to famously term it as a “railway to nowhere.” Analysts opine that for the SGR to make financial sense it has to provide East Africa cross-border transport, potentially all the way to the Democratic Republic of Congo.

However, The Standard on October 25 reported that recent discussions between President Ruto and China President Xi Jinping in Beijing failed to secure Kenya a deal with China for the completion of the SGR to Malaba on the Kenya – Uganda border.

Responding to a frustrated Kenyan who wondered why the SGR, which is owned by Kenya Railway cannot be sold to recoup costs, Dr Ndii while stating that “Kenya had 10 more years of SGR loan repayments” was blunt in his assessment pointing out that, “the railway is a loss maker and Kenya Railway is technically insolvent. “Even if you gave it away, you won’t get takers.”

The signing of the Privatisation Bill 2023 into law has given the Ministry of National Treasury and Economic Planning powers to privatise public-owned enterprises without seeking approval from Parliament. With a number of state corporations lined up for sale, a question was posed to Dr Ndii as to whether the funds raised could get the country out of debt.

“All our state corporations at the best possible price cannot pay one Eurobond maturity, I even doubt they can pay one instalment of SGR loans,” was his reply.

High taxation has been the hallmark of Ruto’s one year in office. With Kenyans weighed down by the punitive tax regime, Dr Ndii was curt in response to questions as to whether a country can tax itself out of a debt hole or if cutting wanton expenditure was a better, more humane option.

“Where were you when Zambia and Ghana needed you? There are still plenty of countries in debt distress that I can introduce you to,” he dismissively retorted while adding that “next time you are demanding infrastructure pay attention to how it is financed. I am still seeing people proposing metros and more highways and whining about being overtaxed.”

Dr Ndii, who holds a PhD in economics from the prestigious Oxford University heads the Presidential Economic Council.

His acerbic posts that shone a light on the behind-the-scenes efforts being taken to stabilize Kenya’s debt situation were in response to his original tweet on October 19 which read in part – “Just came from this event deliberating on how to forestall (Kenya’s) imminent debt crisis ….”

The event in question was a seminar dubbed ‘Sovereign Debt Restructuring: Taking Stock after Marrakech’ held on October 16, 2023, in Paris, France. Organised by Finance for Development Lab and Initiative for Policy Dialogue at Colombia University, it “sought to map the financial vulnerabilities of developing countries, drawing lessons from the most recent restructuring cases, and outlining possible ways forward to grow out of debt overhangs’.