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DEBT AND TAXES: Kenya is living large on borrowed money

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DEBT AND TAXES: Kenya is living large on borrowed money
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Kenya’s fiscal policy – the means by which the government adjusts its spending levels, revenue generation and collection, and debt to monitor and influence the economy- has been a defining feature of the current administration. The three have been characterised by almost consistent features and trends.

Some background information is useful. Kenya has had an annual growth rate of about 5.46 percent from 2004 until 2016. Initially, the economy was slated to grow at around 6 percent in 2017 but this has since been revised to 5 percent. According to Genghis Capital, it will actually be between 4.25- 4.75 percent due to the drought-induced contraction in agriculture, the negative effects of the interest rate cap on the financial sector and the prolonged electioneering period. The Government thinks the economy will grow by over 6 percent next year though the World Bank projects a lower rebound to 5.8 percent in 2018 and 6.1 percent in 2019.

Kenya’s economy is primarily services driven and according to the Kenya National Bureau of Statistics (KNBS), under the Kenyatta administration, growth has largely been on the back of government spending on infrastructure projects such as the Standard Gauge Railway (SGR), the expansion of the road network as well as electricity generation and transmission projects. Other significant contributors to growth include a resurgent tourism industry and growth in information and communication, real estate and transport and storage.

Over the past 6 years, government spending has grown at an average of 14.7 percent, yet revenue growth has only increased by 12.7 percent. Under the current administration, spending has gone up by two-thirds, from Sh1.6 trillion in 2013/14 to Sh2.64 trillion in 2017/18.

Back to fiscal policy, we will address each component separately: expenditure, revenue generation and collection, and borrowing.

EXPENDITURE

Over the past 6 years, government spending has grown at an average of 14.7 percent, yet revenue growth has only increased by 12.7 percent. Under the current administration, spending has gone up by two-thirds, from Sh1.6 trillion in 2013/14 to Sh2.64 trillion in 2017/18. While some of this can be explained by inflation reducing the value of money, there is a consistent trend of notable increases in government spending.

Public spending as a % of GDP

(Source: Institute of Economic Affairs)

 

A fundamental problem in analysing fiscal policy at both national and county levels is determining the intended recurrent vs development budgets and comparing these to the actual expenditure pattern. The image below from the Institute of Economic Affairs Kenya (IEA) details this for the National Government:

Share of Recurrent and Development Budgets in Total MDA Budget.
(Source: Institute of Economic Affairs)

Overall, two key trends are clear, the first of which is that the national budget is still geared towards recurrent spending. Indeed, as the Treasury itself has admitted in the past, recurrent expenditure is reaching unsustainable levels.

There are several factors behind this aggressive growth in expenditure, the first of which is devolution. In 2010 Kenyans enacted a new constitution, which established a bicameral Parliament and 47 county governments. At the beginning of the implementation of devolution, a parliamentary report indicated that it would cost at least Sh36 billion to set up. Prior to devolution, it cost Sh6.6 billion per year to run Parliament, but that figure is expected to rise to Sh14.3 billion. The Parliamentary Budget Office has also stated that it will cost Sh21.75 billion annually to run the 47 county assemblies. Thus, while welcome, the reality is that devolution is expensive.

At the beginning of the implementation of devolution, a parliamentary report indicated that it would cost at least Sh36 billion to set up. Prior to devolution it cost Sh6.6 billion per year to run Parliament, but that figure is expected to rise to Sh14.3 billion. The Parliamentary Budget Office has also stated that it will cost Sh21.75 billion annually to run the 47 county assemblies. Thus while welcome, the reality is that devolution is expensive.

Linked to the point above is the public wage bill which, according to the Salaries and Remuneration Commission (SRC), has ballooned from Sh465 billion when the Kenyatta administration took over to Sh627 billion in the 2015/2016 financial year, an annual average growth of 9 per cent. SRC’s projections show that it will be Sh676 billion in 2016/2017. Earlier this year, the International Monetary Fund (IMF) raised concerns, stating that Kenya is among countries that exhibit large increases in the wage bill, particularly in the run-up to elections. IMF is of the view that given Kenya’s rising debt levels (more on this later) the decision to increase spending on public sector wages is a concern as less funds are left over for economically productive development expenditure. The SRC pooh-poohed the IMF’s concerns, stating that wages were actually falling as a proportion of GDP: from 10.3 per cent in 2012/2013 to 9.5 per cent in 2015/2016.

A second factor behind the growth in expenditure, which the government has been eager to finger as the primary reason, has been the investment in infrastructure. According to the Capital Markets Authority (CMA), Kenya’s current estimated infrastructure funding gap is USD 2-3 billion per year over the next 10 years. To address this, government has allocated nearly a third of total budget expenditure to infrastructure between the 2016/17 and 2019/20 financial years.

The World Bank makes the point that the infrastructure investment drive in Kenya needs to be done in a way that is both efficient and sustainable. With such a robust commitment, key questions must be asked. For example, is Kenya investing in the right infrastructure? The Brookings Institution makes the point that a push for more infrastructure only raises economic growth and people’s well-being if the focus is on quality and impact, rather than quantity and volume. Has Kenya fallen short here? Has the government conducted an audit of infrastructure investment and the development it has engendered thus far? Has there been an audit of its quality? How efficient is our investment? Without an answer to these questions, the country risks wasting resources on aggressive infrastructure expenditure that generates no real benefits for its people.

Indeed, the link between infrastructure and economic growth is more tenuous than previously assumed. According to the London School of Economics, most recent studies on infrastructure’s contribution to growth tend to find smaller effects than those reported in earlier studies; this is linked to improvements in methodological approaches. Kenya, therefore, shouldn’t assume that infrastructure investment and development will automatically lead to significant improvements in economic growth. It is time for a fundamental rethink of the scale, nature and efficiency of the government’s spending on infrastructure.

Kenya, therefore, shouldn’t assume that infrastructure investment and development will automatically lead to significant improvements in economic growth. It is time for a fundamental rethink of the scale, nature and efficiency of the government’s spending on infrastructure.

The final issue regarding expenditure is linked to the mismanagement of public funds at both national and county levels. At the national level, allegations of corruption and financial mismanagement are legion and include: the National Youth Service (NYS) affair where the Auditor General stated a loss of Sh1.9 billion; Sh5.2 billion misappropriated at the Ministry of health according to an in-house audit report; mobile clinics valued at Sh1.4 million each being sold to the government at more than 7 times the price then abandoned in an NYS yard; inflated rig charges at the Geothermal Development Company (GDC) in which the Ethics and Anti-Corruption Commission (EACC) found the tender committee culpable and six managers were sent on compulsory leave.

At county level, there are rising concerns with expenditure considering that the national government has sent to the counties more than Sh1 trillion since their establishment in 2013. Research by the International Budget Partnership Kenya (IBPK) reveals that county governments are not making available fiscal documents required by the Public Financial Management Act (PFMA). Only about 20 percent of key budget documents, including fiscal expenditure documents, meant to be online had been uploaded. Indeed, IBPK reports that in some cases, budget allocations are based on lists of projects drawn up by Members of County Assemblies (MCAs). There is no clarity on the criteria governing such allocations, and even less clarity on how county funds are actually spent. There is a distinct air of mischief informing this laxity. It is not a secret that the first iteration of devolution revealed how much autonomy county governments have in the planning and use of funds they receive and generate. This lack of transparency seems to be aimed at facilitating a culture of financial mismanagement and corruption at the county level in an environment where, frankly, no one is holding them accountable.

Further, county governments see themselves as expenditure units, not development units. This needs to change. Rather than concentrating on how much they have to spend, they ought to focus on the development dividends they are responsible for generating. Without this fundamental shift in thinking, county governments will continue to be like spoilt children, forever crying over what they are owed, but with nothing to show for the development they ought to deliver.

For example, 16 firms listed on the Nairobi Stock Exchange issued profit warnings in 2016, which meant less corporation tax could be collected. Additionally, the 7000 jobs lost to downsizing and shuttering of firms, mainly in the banking sector, reduced Pay As You Earn receipts.

The greatest concern beyond the moral question of the financial mismanagement of the public funds of a poor African country, is the issue of how corruption affects spending efficiency. As will be explained later, Kenya is getting into significant debt, particularly to finance development expenditure. If such debt is not being used as efficiently as possible and instead funds are stolen or dubiously spent, the country will be saddled with onerous debt without he means – the improvements in economic performance that were to come from debt financed development projects – to pay it.

Given the factors detailed above, there are several broad changes that ought to be made. At national level, the first recommendation is for government to commit more money to development expenditure and put more effort into actually absorbing the allocations given to the docket.

Secondly, the national government ought to be more consistent in the manner in which it presents data and should make it easier to track planned versus actual expenditure, particularly across the recurrent and development dockets.

Thirdly, large allocations to infrastructure projects need to be audited and a determination made on the effectiveness of the allocations, how funds can be better spent and recommendations on how to improve efficiency.

Finally, national government has to clamp down on financial mismanagement and prosecute and punish culpable officials. Without this, the government’s commitment to ending corruption will be seen as insincere and ineffective.

At county level, there are several issues that ought to be addressed the first of which is that there needs to be a very clear hierarchy of accountability for county expenditure. Governors and the County Ministers of Finance must be held accountable for their spending and individuals need to be punished if found guilty of corruption.

Secondly, counties must comply with the PFMA and provide breakdowns of their expenditure which includes a delineation between recurrent and development expenditure.

Thirdly, the principle of fiscal discipline should carry considerable weight when national government makes county allocations such that responsible use of resources is rewarded and poor performers are punished.

Finally, a citizen-led effort to create a ranking of county governments according to fiscal transparency with a focus on expenditure would likely create pressure on county governments to adhere to their legal obligations. Included in the ranking should be how well they comply with PFMA stipulations, with the top and bottom performers widely publicised.

REVENUE GENERATION AND COLLECTION

Kenya Revenue Authority (KRA) has been falling short of its revenue targets for some time. For example, in 2016/17 total collection stood at Sh1.365 trillion representing a performance rate of 95.4 percent, and a shortfall of Sh66.64 billion- a significant number. In the first four months of this fiscal year, KRA has already fallen behind by Sh40 billion. There are questions as to why revenue collection consistently underperforms. I am of the view that KRA is given unrealistic targets, more informed by aggressive increases in government expenditure and oblivious to the serious constraints that mute tax collection.

Without this fundamental shift in thinking, county governments will continue to be like spoilt children, forever crying over what they are owed, but with nothing to show for the development they ought to deliver.

Revenue generation targets tend to be revised upwards over the course of the year. KRA’s original revenue target for the 2016/17 was Sh1.415 trillion which was later revised to Sh1.431 trillion, an increase of KES 16.24 billion. This is a concern because motivations behind the increases in targets are not clear. Do they perhaps stem from a realisation in Treasury that it cannot raise as much as anticipated in borrowing?

The second constraint is that the macroeconomic environment informs the extent to which revenues deviate from targets. For example, it is estimated that a 1 percent reduction in GDP growth reduces revenue by Sh13.4 billion and as noted earlier, this has been something of a tough year. A similar increase in inflation also requires that revenue targets be raised by Sh13 billion.

This is linked to sectoral issues which can affect the ability of KRA to collect tax. For example, 16 firms listed on the Nairobi Stock Exchange issued profit warnings in 2016 –a rising trend since 2013– which meant less corporation tax could be collected. Additionally, the 7000 jobs lost to downsizing and shuttering of firms, mainly in the banking sector, reduced Pay As You Earn receipts.

Third, government policy decisions, particularly those related to tax policy, affect the ability to generate revenue. For example, the non-implementation of changes to specific excise rates in 2016/17 reduced revenues by nearly Sh5 billion. Additionally, the duty-free importation of essential foods (maize, milk, sugar) led to a revenue loss of over Sh4 billion in the fourth quarter of the same financial year. Indeed, it is estimated that government policy decisions cost it Sh13 billion in lost revenue that entire year. The government tends to shoot itself in the foot in other ways too. For example, delays in remitting income tax from public institutions costs it Sh823 million.

Finally, revenue generation and collection in Kenya like the rest of Africa is negatively affected by illicit financial flows from the country. According to the UN, Africa loses more than US$50 billion through illicit financial outflows per year. Companies evade and avoid tax by shifting profits to low tax locations, claiming large allowable deductions, carrying losses forward indefinitely, and using transfer pricing.

The main reason why consistent subpar revenue collection is worrying is because the national treasury continues to construct budgets based on the unrealistic targets. For example, revenue generated was meant to play a bigger role in the current budget, financing 60.7 percent of the overall deficit and 58.7 percent of the development expenditure. Since it appears as though targets will again not be met, government will have to borrow more than anticipated.

 

There ought to be fundamental rethink of revenue generation and collection in order to effect a sustained increase. There are several factors to address, the first of which is improvements in the business environment that increase profits and thus taxable revenue. A key component that is often ignored here is the environment for the informal economy. Current assessments largely ignore the sector in which 90 percent of employed Kenyans earn a living. More ought to be done to make informal businesses more profitable.

At the same time, the government ought to seek to expand the revenue base by encouraging the formalisation of these businesses. Concerted efforts must be undertaken to pilot schemes that remove barriers to – and create incentives for – formalisation, particularly of larger businesses that easily evade tax yet are robust enough to consistently pay.

As recommended by the Africa Progress Report 2013, alongside demanding the highest standards of propriety and disclosure from their government, Kenyans should push citizens of the developed world to demand similar standards from their governments and companies.

Finally, Kenya needs to work on curbing illicit financial outflows. The UN makes the point that G8 leaders have committed to the 2013 Lough Erne Declaration, a 10-point statement calling for an overhaul of corporate transparency rules. Among other things, the declaration urges tax authorities to automatically share information to fight evasion. It states that poor countries should have the information and capacity to collect the taxes owed to them. Kenya should join other African countries in lobbying rich countries to enact stricter laws against tax evasion. As recommended by the Africa Progress Report 2013, alongside demanding the highest standards of propriety and disclosure from their government, Kenyans should push citizens of the developed world to demand similar standards from their governments and companies.

BORROWING AND DEBT

In 2013, the Jubilee administration inherited a debt of Sh1.7 trillion after a decade of the Kibaki government. Less than 5 years later, that has ballooned by nearly 250 percent to Sh4.4 trillion. This year’s borrowing has been particularly aggressive. The Central Bank of Kenya (CBK) says that the government is borrowing an average of Sh86 billion per month, the highest level since the bank started listing public debt in 1999, and over Sh30 billion more than the monthly averages of 2015 and 2016.

Despite this, it seems the government’s debt appetite won’t wane any time soon. The Treasury recently announced that it is seeking to issue another Eurobond, which could be used to repay the outstanding US$750 million syndicated loan the government raised in 2015 and which came due in October. What seems to be clear is that given expanding expenditure and subpar revenue collection, borrowing from both foreign and domestic sources will continue to grow. Further, as a Bloomberg analyst points out, Kenya has among the highest debt levels in sub-Saharan Africa, partly a result of having neither the commodity revenue sources of Nigeria and Angola nor the budget support from donor countries enjoyed by neighbouring Tanzania and Uganda.

Before looking at the specific features of Kenya’s debt, it is important to state that debt itself is not necessarily a problem. If used wisely, it can fund investment into activities and projects that catalyse economic development, GDP growth and growth in per capita incomes. Concerns only start being raised when the pattern of debt accrual and servicing seems headed in an unsustainable direction. If expenditure is growing in the context of muted revenue generation, that creates momentum for more debt than cannot be sustainably serviced. Further, if debt is not used efficiently and linked to increases in productivity and GDP growth, it also saddles countries with burdensome repayments. At the moment, Kenya is on the cusp where the government can either take decisive action to put the country on a better debt path, or continue with current trends that are edging the country closer to an unsustainable position.

 

The IEA points out that as of June 2012, total public debt was composed of 52.9 percent domestic debt and 47.1 percent external debt. However, the share of external debt has been steadily growing and recent statistics show that today the situation is reversed, with external debt taking up more than half (52.3 percent) of total debt.

The National Treasury Report 2015 indicates that the external debt stock for Kenya is composed of multilateral debt (54.7 percent), bilateral debt (27.1 percent), export credits (1.5 percent), commercial banks (0.6 percent) and International Sovereign Bonds (16.1 percent). As the IEA points out, a large part of the external debt remains concessional (i.e. on terms substantially more generous than market loans) and mainly from multilateral creditors; however, the share of concessional loans has been falling over the last three years which means external debt is becoming ever more expensive for the country.

There are several factors affecting the composition of debt, the first of which is Treasury’s desire to reduce domestic borrowing in order to release domestic credit for the private sector. This was a major reason given for issuing the Eurobond. As shown by the statistics above, he government has stayed true to this intent in some ways. However, the cap on interest rates introduced last year, has perversely facilitated government’ ability to raise domestic debt as banks, reluctant to lend to the general public due to profit margin and risk concerns, have more aggressively pursued government securities. The attractiveness of government debt is thus pushing the domestic private sector out of the domestic debt market, which contradicts government’s original intent.

The Central Bank of Kenya (CBK) notes that the government is borrowing an average of Sh86 billion per month, the highest level since the bank started listing public debt in 1999, and over Sh30 billion more than the monthly averages of 2015 and 2016.

It is important to note that, as reported in The Standard, World Bank data indicates that the average grace period on repaying new external debt has shrunk by half in the last four years. On average, in 2013, the country was given 8.2 years before starting to repay loans. This had reduced to 4.6 years by 2016. Shorter grace periods reduce the government’s room for flexibility and could be an indicator of jittery lenders keen on getting their money back as soon as possible. Indeed, Bank of America Merrill Lynch notes that Kenyan debt underperforms its peers as evidenced by the fact that yield premiums over U.S. debt have not narrowed as much as those of other sub-Saharan debt. In short, Kenya is seen as riskier to lend to than other African countries.

Informed by the expansion in borrowing, Kenya’s fiscal deficit has also grown. Its ratio to GDP has widened significantly from 6.4 percent in 2013/14 to 10.4 percent in 2016/17. The IEA points out that the large increase in deficit partly reflected the financing of the first phase of Standard Gauge Railway (SGR) project.

Fiscal deficit as a percentage of GDP

Fiscal deficit as a percentage of GDP
(source: IEA)

The government is targeting a fiscal deficit of 5.9 percent of GDP, in the 2018/19 fiscal year, down from an estimated 7.3 percent this fiscal year. Others however do not expect this will be met. Genghis Capital thinks Kenya’s budget deficit for this fiscal year will likely reach 8 percent of GDP. Further, the government doesn’t always hit its fiscal deficit projections. Indeed, according to Cytonn Investments, in the 2016/2017 fiscal year, the government’s deficit actually widened to 8.3 percent of GDP, some way above its revised target of 6.9 percent. In any case, despite the efforts it may be making to reduce the deficit, current government targets and performance are still higher than its own preferred ceiling of 5 percent.

 

The IEA points out that as the amount of debt held increased, the cost of debt has also gone up with debt servicing increasing from about Sh19 billion in 1990 to Sh400 billion by the end of 2015. A larger component of debt servicing emanates from servicing of domestic debt, but since the proportion of domestic and external debt to GDP are almost at par, it may indicate that it is costlier to service the former.

Debt service 1980 – 2016, KES billions

Debt service 1980 – 2016, KES billions
(Source: IEA)

There are growing concerns as to how much revenue is being committed to servicing debt. In the first nine months of the 2015/16 financial year, the government spent four out of every 10 shillings it collected as tax to settle debts. In April, the IMF estimated Kenya’s debt-service to revenue-ratio at 34.7 percent against a threshold of 30 percent, and a report in the Business Daily pointed out that in the last fiscal year, the country spent more money to settle debt (Sh435.7 billion) than it did to finance development (Sh394.2 billion). If more and more revenue has to be locked into servicing debt, government will either have to ramp down spending on development (given the relatively fixed burden of recurrent expenditure) or borrow even more, none of which is good.

The IEA also notes that the ratio of debt to GDP rose from 40.7 percent in 2012 to 56.4 percent in June, which merited a ranking of 78 out of 138 countries on the World Economic Forum’s Global Competitiveness Index.

Government Budget and Public Debt as % of GDP

Government Budget and Public Debt as % of GDP
(Source: IEA); GDP is for full year (FY) and measured in thousands; * Provisional estimates

As borrowing continues to grow aggressively, it will lead to higher imbalances that will raise concerns about sustainability.

Views differ on whether Kenya’s debt is sustainable. Some are of the view that given the massive gaps in key sectors such as energy and transport infrastructure, the country must continue to do everything possible to finance and address the gaps and that debt accrued now will pay off in the long term. Kenya remains below the World Bank’s debt-to-GDP ratio ceiling (or tipping point) of 64 percent. The IMF, in its review of Kenya a year ago, said Kenya’s risk of external debt distress remains low but notes there is need for reduction in the deficit over the medium term. While the IMF has raised concerns about Kenya’s public debt, it is below what they view as the applicable ceiling for Kenya – 74 percent of GDP.

The IEA points out that as the amount of debt held increased, the cost of debt has also gone up with debt servicing increasing from about Sh19 billion in 1990 to Sh400 billion by the end of 2015.

Others, however, are of the view that a debt-to-GDP ratio beyond 40 percent for developing and emerging economies is dangerous. The IMF itself envisages fiscal consolidation that targets a 3.7 percent of GDP deficit by 2018/19 (compared to the government’s own target of 5.9 percent) which it says is critical to maintaining a low risk of debt distress while preserving fiscal space for development priorities.

I disagree with the Treasury’s assertions that the national debt is manageable and that there is headroom for more. Kenya’s debt is only manageable if decisive action is taken to reduce expenditure, boost revenue collection and reduce borrowing. If this does not happen within the next three years, the country will start feeling the effects of debt distress.

The credit rating agency Moody’s has already raised concerns about the country’s accumulating debt. Indeed, the agency is currently assessing whether it needs to downgrade the country’s credit rating from the current B1 status on grounds of its weakening ability to repay debt. Moody argues that unless a decisive policy response is introduced, the upward trajectory in government debt will see the debt-to-GDP ratio surpass the 60 percent mark by June 2018, pushing financing costs for the private sector even higher. Its assessment points to the fact that in the latest fiscal year, the government spent 19 percent of its revenues on interest payments alone, up from 10.7 percent five years ago. It notes that persistent, large, primary deficits and high borrowing costs continue to drive government indebtedness ever higher. Further, government liquidity pressures risk, the danger that the government may not have enough readily available cash to settle its immediate and short-term obligations, is rising in the face of increasingly large financing needs.

Another credit rating agency, Fitch, has also indicated that it could downgrade Kenya’s rating due to its debt position. Fitch noted that the country was spending a larger proportion of its revenue on paying debt compared to its economic peers such as Uganda, Rwanda and Ghana.

Fitch gave Kenya a B+ rating, with a negative outlook. These credit ratings are important as a fall in rating will mean any new foreign debt taken on by the country will be more expensive.

 

There are several broad strategies Kenya can use to better manage its debt the first of which is to aggressively reduce expenditure. Government must implement austerity budgets and limit unnecessary expenditure. I also think here should be a fundamental downward review of salaries of those in government. While those of technocrats such as Cabinet and Permanent Secretaries as well as professionals such teachers and doctors should remain attractive, there are far too many people in elected office on overly generous terms, and the related wage bill is not sustainable for a relatively poor African country.

Secondly, government needs to improve its recurrent vs development expenditure allocations. As elucidated before, year after year, more money is allocated to recurrent expenditure which is not economically productive. A reduction in recurrent expenditure is crucial and this can be partially addressed by a downward review in wages as explained above. The IEA points out that although in relative terms the proportion of recurrent expenditure to GDP has slightly declined while that of development expenditure has nearly doubled from 5.7 percent of GDP in 2007/8 to 11.0 percent in 2016/17, recurrent expenditure still remains comparatively high.

In April this year, the IMF estimated Kenya’s debt-service to revenue-ratio at 34.7 percent against a threshold of 30 percent, and a report in the Business Daily pointed out that in the 2016/17 fiscal year, the country spent more money to settle debt (Sh435.7 billion) than it did to finance development (Sh394.2 billion).

Development expenditure should be prioritised by considering projects which bring immediate returns to the economy. More money must be committed to spurring the growth required to pay debts, if Kenya is to avoid a repayment crisis.

Thirdly, government has to create strategies to ensure more development expenditure is absorbed. A November 2017 report by Controller of Budget showed the use of development funds for the financial year ending in June was at 70 percent, the highest since 2013. While this is good news and higher than the 66 per cent rate recorded in the previous year, it is not good enough. Indeed, the organisation Development Initiatives notes that the 2017/18 fiscal year actually saw a decline in total allocations to development spending by 12.3 percent, as a result of lower absorption of development spending by ministries in 2016/17. The problem is at both national and county levels. As Price Waterhouse Coopers points out, if the entire amount allocated is not being absorbed, it defeats the purpose of the budget especially around development expenditure. Given that the country is getting into a great deal of debt for development expenditure, it is crucial that absorption rates in this docket increase in order to spur economic growth.

Fourthly, government needs to better track how the debt which is financing the development docket, is being used. Given concerns with financial mismanagement of public funds at both national and county levels, it is crucial that the debt spending is meticulously tracked. This is because financial mismanagement of debt funds poses the dangerous risk of pushing the country into debt unsustainability as money is pocketed rather spent to generate growth.

 

CONCLUSION

This article has elucidated Kenya’s fiscal policy and position in terms of expenditure, revenue generation and debt accrual. It is important that the country reduces expenditure, increases revenue generation and better manages debt spending to put the country on a more sustainable fiscal path. We are in a position where Kenya’s fiscal health can be dramatically improved by taking decisive action as per the recommendations herein. It is my hope that the government takes the required action to improve the country’s fiscal path so that fiscal policy plays the positive and important role it can in driving the country’s development.

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Anzetse Were is a Kenyan development economist, researcher, and analyst. She blogs at https://anzetsewere.wordpress.com

Politics

Sudan’s (Non-)Arab Spring: Lessons from the April 2019 and Other Uprisings

The political protests in the Sudan, which began last December in the working class city of Atbara, and the perennial power struggle that triggered political instability in South Sudan, speak to the failure of the Sudanese political elite to manage the post-independence socio-economic and political engineering of the state.

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Sudan’s (Non-)Arab Spring: Lessons from the April 2019 and Other Uprisings
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The Sudanese people have a cultural trait peculiar and typical of them – a cultural practice that downplays the negative in favour of the positive, that treats individualism and egoism as less important than the general welfare of society and that readily sacrifices for another or the country. Western individualism scarcely appeals to the Sudanese sentimentality and sensibilities, whether they are southerners (jinubieen), westerners (garaba), or northerners (shamalieen).

In the words of Prof. John Lonsdale, the Sudanese, in their different social formations, used to live as negotiating ethnicities until colonial rule turned them into competing tribes. More than two hundred years of common history – notwithstanding the bad memories – are difficult to erase or turn away from; socially, they will always run into each other. However, the long history of bitter and violent struggles against foreign occupation, injustice, political repression and totalitarian regimes, unfortunately, failed to sublimate the Sudan into a nation-state although the people yearned for territorial unity. It is not by chance that the protesters in Khartoum hold the secession and independence of South Sudan as one of the criminal charges against the deposed dictator, Omer Hassan Ahmed el Bashir.

The political protests in the Sudan, which began last December in the working class city of Atbara, and the perennial power struggle that triggered political instability in South Sudan, speak to the failure of the Sudanese political elite to manage the post-independence socio-economic and political engineering of the state. Myopia, religious-cultural narrow-mindedness and intolerance, which engendered political exclusion, social discrimination and economic marginalisation or neglect, culminated in the partition of the Sudan, the wars in Dar Fur, Nuba Mountains, and the Blue Nile and civil unrest in eastern Sudan. The crystallisation in the centre of a tiny minority at the helm of the country’s political and economic power at the expense of the vast majority of the Sudanese in rural areas is the source of Sudan’s predicament.

The mass action (processions, demonstrations and picketing) in Atbara, Khartoum and the major cities of the Sudan point to a salient political reality that characterised its regional distinct socio-economic and cultural development. The mass movements in the cities and towns in northern Sudan contrast exponentially with the military action undertaken in rural parts of the Sudan (southern Sudan, Dar Fur, Nuba Mountains, Blue Nile and eastern Sudan), reflecting the differential socio-economic and political evolution of the Sudanese state since the Turco-Egyptian era [1824-1885].

This reality points to the fact that a degree of social and economic development results in transformation of means and relations of production, and engenders a heightened social awareness and political consciousness. In this respect, it makes it easy for the people to establish a tradition of political organisation combined with action in support of socio-economic and political rights. This process occurred in northern and central Sudan in the form of the construction of the railway line from Wadi Halfa to Khartoum (1898), the Gezira scheme (1925) and the evolution of manufacturing light industries in Khartoum North, leading to the emergence of a conscious and politically organised working class that employs processions, demonstrations, strikes, picketing and civil disobedience in support of their demands for social, economic and political rights.

This is the third time in the Sudan that mass action in the form of a popular uprising (intifadha) ousted a military-based totalitarian regime. The first popular uprising was in 1964 (Ibrahim Abboud) and the second was Gaafar Numeri (1985).

On the other hand, however, rural Sudan (southern Sudan, Dar Fur, Nuba Mountains, Blue Nile and Eastern Sudan) is characterised by poverty and ignorance due to dominant traditional modes and relations of production, natural forces and superstition. As a result, social awareness and political consciousness is inordinately low; there is an obvious lack of tradition and culture of organised political action. Thus, to support the demands for social, economic and political rights, the people in rural Sudan use violence as their chief means of mobilisation for changing the political system.

This is the third time in the Sudan that mass action in the form of a popular uprising (intifadha) ousted a military-based totalitarian regime. The first popular uprising was in 1964 (Ibrahim Abboud) and the second was Gaafar Numeri (1985). The common denominator is these popular uprisings was the dominance of workers and farmers’ trade unions, professional associations, the student’s movement led by the Khartoum University Students Union (KUSU) and the political parties playing in the background. Without the workers’ strikes, picketing and sit-ins, civil disobedience wouldn’t be effective. Another feature of the two uprisings of 1964 and 1985 in the cities was that there were parallel military actions by Anya-nya (1955-1972) and the SPLM/SPLA (1983-2005), which contributed to weakening the incumbent regime. The National Islamic Front (NIF) seized state power in a military coup on 30 June 1989 and installed the Ingaz (salvation) system. It exploited the apparent weak performance of the Sudan Armed Forces in the SPLM/A spearheaded war of national liberation in southern Sudan.

Consequences of the paradigm shifts by the SPLM leadership

In a previous essay, I argued that the colonial education system, which essentially was Christian, anti-Arab and anti-Islam, coupled with the policy of annexing the southern provinces to British East Africa, instilled into the southern Sudanese political elite fear and hatred of the northern Sudanese. Thus, at independence, in a country dominated by highly educated northern Sudanese, this fear and hatred turned into a deep-seated inferiority complex in the southern Sudanese political leaders’, notwithstanding the conspicuous power and wealth asymmetry between the two groups.

As a result, the southern Sudanese pursued a policy line that separated them from the northern Sudanese in a common struggle. For instance, in the run-up to independence (1947), there was a strong voice among the southern Sudanese politicians that the southern provinces would remain under British rule while northern Sudan gained its independence. The nationalist trend triumphed in the end and Sudan became independent as one country. This attitude among the southern Sudanese elite – of shunning unified political action with northern Sudan in favour of a separate and parallel struggle against the same oppressive political dispensation – has been the Achilles’ heel in the Sudanese body politic. But even within southern Sudan, this attitude was echoed in the “kokora” (redivision), which culminated in Nimeri dismantling the southern region and the abolition of self-rule that the southern Sudanese had won in the Addis Ababa Agreement, rather than in unified political action together with northern Sudanese opposed to Numeri.

The ideological and political shifts…pushed the SPLM/A into negotiating liberal peace and a comprehensive peace agreement (CPA). It also rescued the Ingaz regime from collapse, extending its life and enabling it to wage war and commit war crimes in Dar Fur in 2003.

The paradigm shifts in the early 1990s, which the SPLM leadership struck following the collapse of the world socialist order, smacks of this attitude of separatism. The SPLM’s ideological shift from revolution to neoliberalism coincided with the political shift from “united secular New Sudan” involving all the oppressed, political excluded and marginalised Sudanese to the right of the people of southern Sudan to self-determination. Had the southern Sudanese- dominated SPLM/SPLA honestly pursued a revolutionary agenda for destroying and restructuring the Sudan in order to meet the aspirations of its people for freedom, justice, fraternity, Omer el Bashir would have fallen in 1997 when he suffered serious military setbacks at the hands of the SPLA in war theatres in southern Sudan, Nuba Mountains and Blue Nile, and at the hands of the New Sudan Brigade in eastern Sudan.

The ideological and political shifts (which made the war of national liberation a southern Sudanese movement, an obvious betrayal of the Nuba, Funj and Beja African groups in northern Sudan who joined the war on the basis of having been marginalised, oppressed and discriminated against), pushed the SPLM/A into negotiating liberal peace and a comprehensive peace agreement (CPA). It also rescued the Ingaz regime from collapse, extending its life and enabling it to wage war and commit war crimes in Dar Fur in 2003.

In fact, the secession of South Sudan left virtually intact the Ingaz system. It strengthened the Ingaz grip on power in the Sudan, enabling it to eschew the issue of democratic transformation on which the CPA was predicated. Once South Sudan was gone, the regime had no political military force to restrain its imposition of the strict Islamic code on the people of the Sudan. It immediately unleashed war on the SPLM/A-North in the Nuba Mountains and Blue Nile. The regime exploited the South Sudan-Sudan border war (2012) in terms of resultant acute economic difficulties in the Sudan, and the eruption of the civil war in the Republic of South Sudan (2013) to strengthen itself vis á vis the armed and political opposition in the Sudan.

Genesis of Sudanese popular uprisings against dictatorial regimes

According to Dr. Hassan Abdalla el Turabi, the Islamic scholar and chief ideologue and architect of the Ingaz system, “the Sudanese masses struggle to bring down military dictatorships while the traditional political parties create conditions for military coups”. To a large extent, this statement carries the truth of the dynamics of the Sudanese body politic since 1958.

Prior to contact with European colonialism, the Sudanese people lived as negotiating peaceful ethnic chieftaincies and kingdoms. However. this situation changed when a repressive and corrupt Turco-Egyptian administration (Turkiya) imposed itself.

The popular uprisings are rooted in the nature of the Sudanese people’s sophist Islam, which is dominant in northern Sudan, with its proximity to Egypt and Europe. As a faith, culture and state in one, Islam, unlike Christianity, has the capacity to arouse in people passions against rulers who are corrupt and unjust. This explains how Mohammed Ahmed el Mahdi succeeded to lead a revolt against the Turkiya (1824-1885) to establish an authentic indigenous Sudanese state (1885-1898). It is this progressive dimension of the Islamic faith that provides energy to enable the Sudanese to quickly mobilise into revolutionary political actions, like the Mahdist’s revolution (1881) and the White Flag Revolution (1924) to mention a few.

The re-conquest of the Sudan and the establishment of the Anglo-Egyptian Condominium (1899) opened the Sudan, particularly northern Sudan, to modernity and to the emergence of a modern working class movement under the leadership of the Sudan Railways Workers Trade Union. This had enormous impact on the evolution of people’s social awareness and political consciousness; the already advanced nationalist movement in Egypt augmented and accelerated Sudanese nationalism, which began under the aegis of the “unity of the Nile basin”.

The Sudanese people, mainly the intelligentsia, benefited from the education opportunities in Egypt, and indeed, most nationalist leaders obtained knowledge and influence of modern ideas from contact with Egypt, which had invested interest in restoring the Sudan to the Egyptian crown. Thus, and because of the terms of the Condominium Treaty, the Sudanese Army evolved as part of the Egyptian Army in the Sudan commanded by British officers but with a tradition of fidelity to the homeland rather than the colonial authorities. This worked to the advantage of the Sudanese nationalist movement, leading eventually to the White Flag revolution (1924), which played out in critical political situations, when as a national institution it was forced to choose between the people and the repressive regime in power.

These and many other factors that cannot be enlisted here shed light on the genesis of Sudanese popular uprisings. It must be mentioned that the pattern of these uprisings was by no means uniform, although it could be said with confidence that the military coups have invariably followed a similar pattern, usually as a result of the failure of political parties to manage power and the democratic process. The northern Sudanese people are highly politicised and organised, which makes it easy for them to craft political action even at the residential neighbourhood level. This explains the ease with which they quickly establish networks of resistance or solidarity.

The second democratic and multiparty political dispensation (1964-1969) was not really democratic. Like the first, it suffered serious political hiccups as the traditional-theocratic political parties (Umma and DUP) and Islamic Charter Front (ICF) jostled for the promulgation of an Islamic Constitution to replace the Transition Constitution (1956) amended in 1964.

The dynamics and intricacy of Sudanese party politics pushed the then Prime Minister Ibrahim Khalil (Umma Party) to hand over power to Gen. Ibrahim Abboud on 17 November 1958 (ostensibly to take it back after six months after the political temperature had cooled down). The masses had to oust Abboud in October 1964, six years later. The October revolution, which the Sudanese people all over the world revere as a paradigm of its own, precipitated civil disobedience throughout the Sudan that paralysed the military government, forcing it to hand over power to a civilian government in eight days (October 21-28).

The second democratic and multiparty political dispensation (1964-1969) was not really democratic. Like the first, it suffered serious political hiccups as the traditional-theocratic political parties (Umma and DUP) and Islamic Charter Front (ICF) jostled for the promulgation of an Islamic Constitution to replace the Transition Constitution (1956) amended in 1964. The political right outlawed the Communist Party of the Sudan (CPS) and unseated its members in the Constituent Assembly to the chagrin and disappointment of the political left, which in reality led the October revolution now stolen by the right-wing politicians. This development paved the way for the military coup, which the leftist Free Officers Movement in the Sudanese Armed Forces, led by Gaafar Mohammed Numeri, pulled on 25 May 1969.

The leftist stint at state power was short-lived, primarily because of the ideological split within the CPS eventually working to the advantage of the ICF, which exploited the ideological void in the May regime left by the communist and revolutionary democrats. Following the Port Sudan agreement (1977) between Numeri and the National Front (right-wing political parties of Umma, DUP and ICF), Dr. Hassan el Turabi decided to join in order to eventually take over the May regime under the guise of political Islam.

Numeri’s abrogation of the Addis Ababa Agreement (1 June 1983), which established the Southern Region, and his imposition of Islamic Sharia laws (September 1983) created the conditions for his overthrow in a popular uprising on 6 April 1985. The dismantling of the Southern Region triggered war in Southern Sudan under the SPLM/A. At that time, the Sudan had gone into deep social and economic crises due to the structural adjustment programme (SAP) imposed by the World Bank and the International Monetary Fund (IMF). The Sudanese pound plummeted from 0.35 to 1 against the US dollar and further down until the dollar exchanged for three Sudanese pounds. The government could not provide social services. Drought and famine had struck in Dar Fur and Kordofan, causing massive population migration to Khartoum. All these factors and war in southern Sudan culminated in the March-April 1985 popular uprising and the fall of the May regime.

The popular uprising did not uproot the regime as was anticipated. The regime’s prominent ideologues and influential elements remained at large. The ICF leadership, now rebranded National Islamic Front (NIF), remained influential in the army and in the bureaucracy. The forces of the intifadha, ensnared by the army’s top brass decision to side with the demonstrators after weeks of bloodshed, gave in too quickly and left the May regime intact even though it had been removed from power. No wonder that NIF ranked the third largest political force in the Constituent Assembly elected in 1986, although its leader Dr. Hassan Abdalla el Turabi, was trounced in a Khartoum constituency.

The third democratic and multiparty-political dispensation departed from the trajectory after October 1964, but again the Umma Party, now led by Sadiq el Shadegg Abdurrahman Mohammed Ahmed el Mahdi, never internalised the lessons learnt after the October 1964 uprising. His prevarications and hesitation to implement the SPLM/A-DUP agreement of December 1988, notwithstanding the defeats his army suffered in war theatres, paved the ground for the NIF to usurp power in a military coup on 30 June 1989.

No human situation lasts indefinitely; political repression and all kinds of injustices end at some critical intersections and crossroads. The Ingaz lasted thirty years because of divided opposition to it; the southern Sudanese, who have been instrumental in the survival or demise of regimes and governments in the Sudan, unfortunately diverted from the Sudanese nationalist movement into secessionism…

The NIF, now rebranded Ingaz, is a modern political force in terms of its ideology and sophisticated political, security and intelligence organisation. It set to transform the Sudan in accordance with the Sharia and the Suna. It constructed a system of political repression, corruption, economic self-aggrandisement and set out to destroy or take over the tools of political resistance: workers’ and farmers’ trade unions, professional associations, and women’s, youth’s and students’ movements. It carried out Jihad in southern Sudan, Nuba Mountains and Blue Nile. During its tenure, tens of thousands of young men and women perished. Through political repression, a network of political patronage and ruthless security/intelligence service,s the NIF managed to establish an Islamic totalitarian regime in the Sudan for thirty years despite the split within its ranks (1999) that witnessed Dr. Turabi’s incarceration and the eventual formation of his Popular Congress Party (PCP) parallel to and competing with the National Congress Party (NCP).

The April 2019 uprising: Will it spell Ingaz’s total demise?  

No human situation lasts indefinitely; political repression and all kinds of injustices end at some critical intersections and crossroads. The Ingaz lasted thirty years because of divided opposition to it; the southern Sudanese, who have been instrumental in the survival or demise of regimes and governments in the Sudan, unfortunately diverted from the Sudanese nationalist movement into secessionism, thus forfeiting their pivotal point of being the non-Arab and non-Muslim members of the Sudanese nationalist movement, which could have easily led to the construction of a Sudanese state based on the principle of “unity in diversity” – hallmarks of any democratic dispensation.

There have been attempted uprisings but to no avail since the Arab spring of 2011 that swept the regimes in Tunisia, Libya, Egypt, and Yemen. This time, the architects and leaders of “change and peace”, the Sudanese Professional Association (SPA), acted prudently so as not to repeat the mistakes of the past that permitted the “stealing” of the revolution. On 25 December 2018, which is not a public holiday in the Sudan after the secession of South Sudan, a group of twenty-one professionals (university professors, lawyers, doctors, engineers vets and others) released a public statement titled, “Such that the people’s revolution is not stolen: people’s revolutionary consciousness is the only guarantee for our people”, in which they outlined five important points they categorised as the five principles of the fourth people’s revolution.

These principles inter alia are: to overthrow the regime to stop the deteriorating socioeconomic and political situation in the country; never to allow change of the system from within, otherwise it is going to be Ingaz 2; although the pivotal role of the organised forces is welcomed in the overthrow and dismantling of the Ingaz system, changing the regime through a military coup should never the allowed; never to accept a Military Council on the basis of what transpired following the March-April uprising (1985), which eventually became May regime 2; the demand should be“a revolutionary council comprising the forces of change and whose mandate shall be national sovereignty.

The SPA and the Sudanese masses believe, and are convinced, that the revolution was not just to remove Omer el Bashir or the Ingaz regime for that matter, but to transform the Sudan’s falsified reality and restore its national dignity. There are even calls for the Sudan to quit the Arab League and return to its African roots, which has received support from the masses.

The SPA is following the principles to the letter, as reflected in the decision to camp the protestors into the precincts of the Armed Forces headquarters in Khartoum since 6 April, which marked the thirty-fourth anniversary of Numeri’s overthrow. This is a complete departure from the pattern of previous uprisings, which handed over power to the traditional political parties through fake or bogus elections. The traditional and theocratic political parties and the Islamic Charter Front had been using Islam, a faith to which the majority of Sudanese subscribe, as a political tool to dampen people’s consciousness, making it easy to ensnare them into voting them to power. If the demand now by the members of the SPA to liberate Sudanese politics from religion is met in the new dispensation, it will go a long way in transforming Sudanese reality. (Religion is a double-edged sword.)

The SPA and the Sudanese masses believe, and are convinced, that the revolution was not just to remove Omer el Bashir or the Ingaz regime for that matter, but to transform the Sudan’s falsified reality and restore its national dignity. There are even calls for the Sudan to quit the Arab League and return to its African roots, which has received support from the masses. The reaction to the events in the Sudan have been varied, from support for the military Junta coming from the Kingdom of Saudi Arabia, the Emirates and Egypt to outright rejection of the Junta by the African Union (AU). The AU, in its resolution 5 (c) to “freeze Sudan’s participation in its functions if the Military Council does not surrender power to a civilian authority in two weeks from the date of the resolution”, inadvertently supports the SPA.

My reading of the situation is that although the Junta continues to implement the demands of the protesters camped in its headquarters to arrest, incarcerate and confiscate the looted property of the Ingaz figures, nevertheless, they will procrastinate in handing power to the civilian Supreme Council of the State and a civilian cabinet until they are assured of their immunity from prosecution. . It must be viewed that their intervention was to prevent a sharp split in the army and to keep the Ingaz intact. Most of the members of the Military Council were senior officers in the army and security forces whom Bashir appointed recently, ostensibly to protect his back. The Chair of the Military Council, Gen. Burhan, hails from Bashir’s ethnicity, and may be counting on a possible split along ethnic and regional contours to occur within the ranks of the SPA and the protesters to drive a wedge and weaken the protest.

So far, the SPA and the Sudanese people are united in their demand that an Ingaz 2 shall never be allowed, which explains their demand to dismiss from the information and communication industry all those bureaucrats, journalists and news anchors linked to Ingaz 1. The deposed President Omer el Bashir and his two brothers, Ali Osman Mohammed Tah and Dr. Awad el Jaz, and many other Ingaz figures have been incarcerated in Kober Maximum Prison – a positive development and indication that SPA means business.

While time may be running out for the Junta on account of non-recognition and other diplomatic etiquettes, the SPA and the protesters camped in the army headquarters may continue to bask in the support of the Sudanese masses until they succeed to form the Supreme Council of the State – with or without a representative of the Junta – and a Constitutional and Legislative Assembly representing the forces of change, which in turn will elect a Prime Minister, a Deputy Prime Minister and seventeen civilian ministers of impeccable character. It remains a tall order to transform Sudan’s reality after thirty years of Ingaz

The impact of Sudan’s uprisings on South Sudan and the region

Although until recently (2011), South Sudan was an integral part of the Sudan, nevertheless, as I have mentioned above, its people had not completely integrated into the social and political fabric of northern Sudan. The Southern Sudanese invariably (except for small groups of leftist activists) pursued a separatist agenda, and therefore, don’t count themselves part and parcel of the Sudanese nationalist struggle even though they may have participated in the struggle as individuals or as groups. They have, therefore, forfeited their share of the victory. Not only that but they also don’t benefit in terms of acquiring political skills, such as tactics and strategies, in their struggles. This explains why political struggles in southern Sudan then, and now South Sudan, have invariably been violent ethnic conflicts and wars.

Before speaking about the impact of the Sudanese uprisings, it is important to analyse the context of the Horn and the Great Lakes Region in terms of political contacts and flow of ideas, without which it will be practically impossible to gauge the impact of social and political developments in any of the countries on the others in the region.

It is a fact that nationalist movements in the region were fragmented and isolated from each other although there was the overarching Pan-African movement whose objectives were continental liberation. It is obvious the national movements were stronger than the Pan-African movement, whose ideological messages did not permeate traditional, conservative and liberal African political thought. The relations in the region were and remain competitive and conflictual, revolving around inviolability of arbitrary colonial borders. Thus political formations in the region had much on their plates other than solidarity across common borders.

This may explain why important socio-political developments occur without concern, solidarity, or drawing important lessons to be employed locally. Sudanese uprisings did not have much impact on the political party organisation and action in East Africa nor did developments in Aast African countries impact political struggles in the Sudan. For example, the union of Tanzania and Tanganyika did not impact or influence the southern Sudanese desire to pursue secession. The second liberation struggles in Kenya in the 1990s never borrowed a leaf from the Sudanese struggle against Numeri’s totalitarian regime. For instance, it was not enough to remove section 2A from the constitution to relax the struggle against Moi’s totalitarianism

Now times have changed and it is becoming clear that peoples’ struggles and mass movements against dictatorship, personalised rule, and acute economic pauperisation of the masses emanating from the crisis of capitalism in the region at least share some characteristics and must therefore learn from each other in terms of setting strategies and tactics and solidarity with each other. The mass movements in Kenya and Uganda must learn to organise and build solidarity networks and shield them from the repressive security organs of the state, It is important to view a crisis in one sector as part of a crisis in the whole system. The political tool (civil disobedience) in the hands of Sudanese protesters was effective only because all subscribed to the principle of solidarity and all sections of society participated in it at the same time. Mass action in a sector must involve the professionals, the technicians, the workers – otherwise it will not succeed.

Organize Don’t Agonise!!

Aluta continua!!

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Winter Is Coming: Why Our National Debt Is Illegitimate, Unjust and Unsustainable…and Why We Should Be Worried

Greece teaches us, if we will listen, that the time is likely to come when Kenya will be unable to pay government workers’ salaries and will not be able to fund essential public services, such as security. At this point, the Government of Kenya will be forced to take on yet more borrowing to prevent a mass uprising. These “rescue packages” will be offered on grossly usurious terms, terms that the government will have no choice but to accept.

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Winter Is Coming: Why Our National Debt Is Illegitimate, Unjust and Unsustainable…and Why We Should Be Worried
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Recently the matter of Kenya’s national indebtedness has gained wide coverage in the media, not least in a presidential roundtable with the press on December 28th, 2018. In my opinion, our nation is grossly indebted, and in fact we are in a de facto state of emergency as far as our nation’s finances are concerned. I hope to demonstrate this fact below, and to suggest what options we have for dealing with our indebtedness.

Several indicators for measuring national indebtedness exist, such as Debt-to-Gross Domestic Product (Debt:GDP), debt per capita, etc. Probably the most widely-used indicator is the Debt:GDP ratio. This particular metric is so obfuscatory and misleading that it is not inconceivable that it was actually developed to mask the truth about national indebtedness the world over.

When we as individuals want to borrow salary-backed loans from banks, the banks attempt to assess our ability to pay off these loans by reviewing our payslips, sometimes going back 3 to 6 months. This effort is calculated to answer just one question: what is our take-home pay? In doing this, the banks are assessing our credit-worthiness, which helps to reduce the risk of default.

At the national level, however, this abundance of caution is thrown to the wind. The use of the Debt:GDP ratio to measure national indebtedness means that a country’s ability to take on more debt is assessed on the basis of its GDP. At an individual level, such an assessment would approximate assessing our ability to pay off salary-backed loans based on our gross pay. In fact, it is much worse: it is more like assessing an individual’s ability to pay off a loan based on how much revenue he generates for his employer. Even if such a company is just breaking even, the revenue an employee earns his employer must necessarily exceed his salary, or else that organisation would be unable to meet its operational costs, such as rent, electricity and other office expenses. Put another way, the revenue an employee generates pays a lot more than his salary). Since GDP attempts (poorly) to measure the total value generated by all the economic activity in a nation, to use it as a basis for measuring whether a country has room to borrow is patently unwise simply because not all the value created in a nation’s economy is available to pay a nation’s debt.

The revenue employees generate and the value an economy generates (GDP) are analogous in that both are measures of value created. However, whereas the revenue produced by employees accrues directly to their employers’ GDP, it does not so directly accrue to a nation. For example, after a loaf of bread has been produced in a country, that loaf is not submitted to the government, yet its production adds to the nation’s GDP. For this reason, even a revenue-based definition of employees’ income does not properly approximate the absurdity of using GDP as a measure of national income on which to assess indebtedness because not all of GDP accrues to the nation as income.

By masking true indebtedness, therefore, the Debt:GDP ratio encourages wanton borrowing. This works in favour both of fiscally irresponsible (or worse, corrupt) governments and of predatory lenders…

What is the net effect of all this? The more broadly a lender can define a borrower’s income, the larger the proportion of that borrower’s true income that will flow out as loan repayments, and the more the borrower’s assets stand at risk of repossession as collateral. This is what has happened to us as a nation. When we consider further stratagems like rebasing our GDP, which had the effect of increasing our GDP by 25% at a stroke, it can be seen that by nominally increasing our GDP the illusion was given that our nation was able to take on even more borrowing than before, opening the gates to yet more lending.

By masking true indebtedness, therefore, the Debt:GDP ratio encourages wanton borrowing. This works in favour both of fiscally irresponsible (or worse, corrupt) governments and of predatory lenders, both private and multilateral (the line between private and multilateral lenders is far thinner than is generally believed). We do not pay debt out of GDP. We pay debt out of our national revenues. The more revealing and honest measure would be debt-to-national revenue. For the same reasons of honesty and clarity, it is prudent to narrow the definition of national revenue down further to tax revenue, thereby eliminating grants, donations, monies realised from the sale of public assets, and other incidentals from the discussion.

The problem – from the viewpoint of irresponsible governments and predatory lenders, of course – is that once we do so, the scales will fall off our eyes and it becomes apparent just how much of our nation’s money is going towards servicing our debt. According to the national Treasury, our national debt, which stood at Sh1.894 trillion in the financial year (FY) 2013, had grown to Sh5.047 trillion by the end of FY 2018, a growth of 269 per cent.

In 2013, however, the government collected a total of Sh754.2 billion in taxes. The implication is that our Debt:Tax ratio stood at a whopping 251 per cent in that year. By 2018, although revenue collections had grown to Sh1.47 trillion, our debt had grown much faster, so much so that our Debt:Tax ratio in the FY 2018 stood at 343 per cent.

Our GDP in 2013, according to the same report, was Sh4.496 trillion, meaning our Debt:GDP ratio was 42.1 per cent in 2013. In 2018, our GDP was Sh8.845 trillion. (This suggests that our GDP has been growing at a compounded annual growth rate of 14.49 per cent, which would be news to most Kenyans; the effect of rebasing our GDP can now more clearly be seen.) These figures imply our Debt:GDP ratio in FY 2018 was 57 per cent.

In 2013, however, the government collected a total of Sh754.2 billion in taxes. The implication is that our Debt:Tax ratio stood at a whopping 251 per cent in that year. By 2018, although revenue collections had grown to Sh1.47 trillion, our debt had grown much faster, so much so that our Debt:Tax ratio in the FY 2018 stood at 343 per cent. In other words, if the Government did nothing else but pay off our national debt – if it did not pay teachers, doctors, nurses, the army, and the police; if it did not provide medical supplies; if it bought no textbooks; if it did not construct one metre of road or railway; if it did not construct one hospital room or classroom or police post – it would take us about three and a half years to pay off the national debt.

Table 1: Kenya's Debt:GDP vs Debt:Tax ratio, FYs 2013 - 2018

Table 1: Kenya’s Debt:GDP vs Debt:Tax ratio, FYs 2013 – 2018

This situation is untenable. National Treasury data indicates that in FY 2018 we spent Sh459.4 billion servicing our debt. By that measure, debt repayment was the single largest item in our nation’s expenditure, exceeding our expenditure on transport infrastructure (Sh225 billion), health (Sh65.5 billion) or education (Sh415.3 billion). In other words, we are spending more paying off our debt than we are spending providing good transport for our people and good treatment for our sick – combined.

A day of reckoning is soon coming for our beloved country, on which day we shall realise that indeed, as per the Holy Writ, “…the borrower is slave to the lender”, and that debt (even if the money is used well, let alone if it is actively misused as we have done) is the tool of the neo-colonialist. It will become starkly apparent that by a system of multilateral and international debt, there is a sense in which foreign powers have been able to be perhaps as extractive of our nation’s wealth as they were when they were in power as our colonial masters. There is in fact a very real sense in which the colonial powers never really left. The only major change is that China is now on the list of our foreign masters.

We have already seen multilateral lenders like the International Monetary Fund (IMF) force our government to impose VAT on fuel. This is not the first time this happened. In 2013, when our debt was less than half what it is now, the IMF backed changes in our VAT law that would have imposed VAT on milk and medicines, claiming that “…the changes in the law [would] put Kenya in line with other modern VAT regimes in the world by simplifying the way it operates while reducing the number of exempt items.” Although the Cabinet did not impose VAT on milk and medicines, other items, such as textbooks, periodicals and magazines, did not escape the taxman’s levy. The press reported that our national port in Mombasa was used as a security for the loan that was used to construct the Standard Gauge Railway (SGR). These are not isolated bellwethers of the dire situation our country finds herself in: the Daily Nation recently reported that we will require Sh1.04 trillion to service our debt in FY 2020. Where will it come from?

We must now examine possible solutions to what is clearly a monumental problem. The truth is this: debt can be dealt with either by paying it, or by not paying it. National debt can be repaid through austerity programmes and/or by the realisation of collateral. A nation may avoid repayment by pursuing debt forgiveness; defaulting on our sovereign debt; and/or overseeing a managed default on our sovereign debt.

Options for paying our national debt

Austerity programmes

Since the national debt can only be paid out of taxes, an escalation of the national debt can only result in an austerity programme. Austerity is a term that follows a very well-worn path of giving nasty, anti-common man policies honourable names (this is what is called “Economese”). Simply put, austerity necessitates the redirection of large portions of tax receipts away from normal government expenditure (including mission-critical social expenditure like health and education, and away from development expenditure) in an effort to pay off the debt. The Merriam-Webster dictionary describes austerity as “enforced or extreme economy”.

The fact that Kenya is – whether it has publicly announced it or not – well up the austerity road is evidenced by the earlier observation that debt repayment is the single largest item in our nation’s budget. By the time our lenders and leaders decide to announce that we are in an austerity programme, we will have been in one for years.

To examine where this road leads, we must turn to Greece. That nation has been locked in austerity’s deathly embrace for the better part of a decade. An Al Jazeera article notes that the austerity programme in Greece was occasioned by over-borrowing (sound familiar?) in the years leading up to the global financial crisis, which was exacerbated by a rise in rates occasioned by that crisis. In order to keep paying government salaries and finance public services, Greece had to accept an initial loan of EUR110 billion from its Eurozone partners and the IMF. To pay off this loan, the country was compelled to institute radical austerity measures. How did that go?

In August 2018, the Guardian summarized Greece’s experience thus:

The European Union, the European Central Bank and the International Monetary Fund loaned Greece a total of €289bn ($330bn) in three programmes, in 2010, 2012 and 2015.

The economic reforms the creditors demanded in return brought the country to its knees with a quarter of its gross domestic product (GDP) evaporating over eight years and unemployment soaring to more than 27%.

The fundamental contradictions between the envisaged outcomes of austerity and its outcomes in reality are also the reason we find multilateral lenders talking out of both sides of their mouths, first imposing these programmes, and then sheepishly admitting that they have not worked. The IMF, for example, actually produced a report stating that it made notable failures on its first rescue package to Greece.

Greece teaches us, if we will listen, that the time is likely to come when Kenya will be unable to pay government workers’ salaries and will not be able to fund essential public services, such as security. At this point, the Government of Kenya will be forced to take on yet more borrowing to prevent a mass uprising. These “rescue packages” will be offered on grossly usurious terms, terms that the government will have no choice but to accept. Then, in a strange twist of irony, the very people upon whom the initial injustices were visited will do the lenders’ marketing for them by way of a civil uprising. From then on, our nation’s expenditure will be “supervised” by these lenders, not to help the Kenyan people, but to ensure that these lenders are paid. These are doomsday scenarios, and I find it difficult to even write them. Yet it can get worse – and has, elsewhere in the world.

Realisation of collateral

Realisation of collateral is a method of debt payment that is as old and as basic as Shylocks. It is difficult to recall a time when national debt was collateralised to the extent that has happened in the recent past. It appears that the realisation of collateral appears to be the favoured method of China for collecting debt. For our case study on this, we must turn to the nation of Sri Lanka, as the New York Times reported:

Every time Sri Lanka’s president, Mahinda Rajapaksa, turned to his Chinese allies for loans and assistance with an ambitious port project, the answer was yes.

Yes, though feasibility studies said the port wouldn’t work. Yes, though other frequent lenders like India had refused. Yes, though Sri Lanka’s debt was ballooning rapidly under Mr. Rajapaksa.

…Mr. Rajapaksa was voted out of office in 2015, but Sri Lanka’s new government struggled to make payments on the debt he had taken on. Under heavy pressure and after months of negotiations with the Chinese, the government handed over the port and 15,000 acres of land around it for 99 years in December [2017].

There are examples closer to home. In December 2018, the US National Security Advisor, John Bolton, sensationally claimed that China was about to take over the Zambia Electricity Supply Corporation (ZESCO), which is Zambia’s version of Kenya Power & Lighting Company, before KenGen and Ketraco were hived off. Although this rumour was strongly refuted by Zambia’s presidential spokesman, Mr Amos Chanda, Mr Chanda did admit that Zambia owes China US$3.1 billion in debt. In Africa that kind of statement from that kind of person often means the figure is much higher; indeed, some sources have placed the figure at US$6.4 billion.

In 2017, Zambia’s police force had to scrap plans to hire eight Chinese nationals following a public outcry. Zambians were concerned about having to salute a Chinese national in their own country. It is also true that in November 2018 police arrested over 100 residents in Kitwe (the country’s second-largest city) who were protesting the alleged sale of the Zambia Forestry and Forest Industries Corporation (ZAFFICO). There is a possible sub-plot here: Mr Bolton’s claim may mean that the IMF and Western allies are worried that they are losing their grip on the Zambian nation to China.

Options for not paying our national debt

In advocating for the non-payment of national debt I am not advocating injustice or dishonesty for this reason: “The government” is not a nebulous entity separate from the people. The government is the people. When the government borrows, it is the people who are borrowing; when the government pays, it is the people who must pay; indeed, it is their taxes that are used to pay.

As can be seen from the foregoing, over-borrowing, poor governance and/or the mismanagement of public funds can lead to adverse effects, not on “the government”, not on the lenders – even private lenders – but on the people. The stark truth is that austerity rarely, if ever, aids recovery – unless by recovery we mean the recovery of lenders’ money.

As can be seen from the foregoing, over-borrowing, poor governance and/or the mismanagement of public funds can lead to adverse effects, not on “the government”, not on the lenders – even private lenders – but on the people. The stark truth is that austerity rarely, if ever, aids recovery – unless by recovery we mean the recovery of lenders’ money. Austerity is a creditor-oriented policy, not a people-oriented policy, and it fails because cuts in government spending result in reduced consumption, unemployment and lower tax receipts. Yet tax receipts are what are needed in order to pay off the debt. The realisation of collateral (the other solution) is nothing but the seizure of a people’s land

There exists, therefore, a moral case for non-payment, which is this: that the betrayal of a people by its ruling class through the accumulation of a debt whose benefits the people never realised should not be visited upon the class of the ruled, who pay the debt. On this point, therefore, I am advocating for justice, not injustice; and for honesty, not dishonesty.

Debt forgiveness

Debt forgiveness is not a new concept; it is in fact a biblical concept. The concept of Jubilee meant that every 50 years, during the eponymously-named Jubilee year, all debts were written off, all enslavement ended, and everyone was allowed to return to whatever ancestral lands that they might have had to give up because of an inability to pay back debt. A thorough examination of the wisdom and justice of this law would take up a solid chapter in a good book; suffice it to say that it acted like a legislated revolution, resetting the kind of gross national inequalities that US Senator Bernie Sanders is grappling with – for the price of a trumpet blast.

Our gross national indebtedness means – or rather, dictates – that we pursue debt forgiveness, because we simply cannot pay back everything we have borrowed. The problem is that we are not considered a poor country any more – not even a low-income country. We are now a middle income nation, and precedent shows that debt forgiveness is the preserve of highly indebted poor countries. Our pleas for debt forgiveness, therefore, are quite likely to fall on deaf ears. Further, a significant portion of our national debt is owed to China and China, Sri Lanka might whisper, is not a nation one asks for forgiveness.

A note of caution must here be sounded: only 15 or so years ago, Zambia had its debts wiped clean under the IMF’s Heavily Indebted Poor Countries scheme. The same country then took “less than a decade” to run up fresh debt of 59 per cent of GDP, buying million-dollar fire engines and constructing roads twice as expensive as those of her neighbours.

A strategy of debt forgiveness is, therefore, useless in the absence of enforced legislation to ensure that future over-indebtedness and/or wastage is prevented. A law preventing the government from tying up more than 10 per cent to 15 per cent of the average tax collected in the previous five years on debt servicing would be a very good place to start. The laws preventing wastage and theft of what we actually do borrow do exist, but require radical enforcement.

Default on sovereign debt

There exist exceptional circumstances in which nations default on their national debt. These times are usually presaged by significant external shocks or political ones, such as when Fidel Castro took over in Cuba in 1959, and simply defaulted on outstanding Cuban debt. The bonds on which he defaulted are in default to date.

Reference is often made to the Argentinian default (and one must be specific) of 2001. In 1998, Argentina’s economy entered a deep recession. The IMF’s by now predictable solution, of course, was austerity. Over the course of the following two years, it became increasingly clear that the toxic mix of an artificially fixed exchange rate, a steadily worsening balance of payments deficit (imports exceeding exports) and mounting debt, among other factors, meant that Argentina would never be able to pay off its debt.

Then the people began to protest, with increasing vociferousness, against austerity. When in December 2001 the IMF realised that default could not be avoided, it held back previously promised “support” so that the government was left without any external funding. Bank runs and riots followed: at one point the country had five presidents in ten days. Finally, on December 24, the country defaulted on a US$ 100 billion debt. This led to a social crisis of epic proportions, characterised not least by rampant unemployment.

Sovereign defaults of this nature tend to be devastating and ought to be avoided. The social cost ends up being far too high, even if one is a Castro leading a non-conformist Cuba. Firstly, in order to teach other would-be defaulters a lesson, lenders make an example out of one. Secondly, the world has become too interconnected for us to make ourselves a pariah state for any length of time: globalisation is a source of many ills, but it can help us as well, for we have a surplus of labour that we can offer the world (among other competitive advantages).

Managed default on sovereign debt

The way we might want to do it is the way Ecuador did it between 2007 and 2009. The then President Rafael Correa stopped payments on bonds that the country had taken out, and established a “debt audit commission” to conduct an audit on the country’s debt, which at the time was using up 38 per cent of the government’s budget. The purpose of this audit was to establish the “legitimacy” of the debt.

This was a brilliant first step. Firstly, it brought to the forefront the moral injustice of a people’s having to pay loans from which they never benefitted. Secondly, the reason given for the initial default was a moral one, as opposed to a financial one (even though the financial reasons lurk menacingly in the background). The genius behind the debt audit was that it was for establishing the morality (and not merely the affordability) of the public debt. Such a debt audit commission in Kenya – objective, apolitical (in a local sense), staffed with technically qualified, patriotic individuals and with an ability to trace the flows of borrowed funds – would likely produce spectacular results.

The way we might want to do it is the way Ecuador did it between 2007 and 2009. The then President Rafael Correa stopped payments on bonds that the country had taken out, and established a “debt audit commission” to conduct an audit on the country’s debt, which at the time was using up 38 per cent of the government’s budget. The purpose of this audit was to establish the “legitimacy” of the debt.

Ecuador’s debt audit commission found that the debt was illegitimate based on the manner in which negotiations were conducted. (The reasons for which debt can be illegitimate are myriad: here in Kenya, the factors would range from non-existence of the assets ostensibly purchased with the debt, overpricing of assets that do exist, payment of bribes and kickbacks, and lack of public participation and parliamentary approval, etc.) Arising from the stopped payments, and from the public establishment of the illegitimacy of the debt, the value of the bonds on the open market plunged. The Government of Ecuador then tendered to repurchase the bonds at 30 cents on the dollar. On the basis of the auction results, the government then offered to buy back the bonds at 35 cents on the dollar, expecting to retire at least 75 per cent of the bonds. Ninety-one per cent of the bonds were so retired in June 2009, that the government paid off its public debt for about a third of what it was worth and, according to President Correa, saved US$ 300M (Sh30 billion) per year in interest payments.

The Ecuadorian solution has an elegance that only simplicity gives. However, its success needs to be assessed against the backdrop of an important contextual factor: the retirement of the country’s debt happened at a time when markets were in the throes of the global financial crisis. Investors, therefore, were under pressure to liquidate their assets. Further, how successful this method would be as regards Chinese debt is anyone’s guess: simple and easy are vastly different things.

That said, the process presents a blueprint for any government that is ready and willing to ease the burden of over-indebtedness and is an option and a strategy this country should pursue – before it’s too late.

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Rafael Marques de Morais: “For Press Freedom, I Have Had to Fight to Free the Angolan People from Fear”

Interview of Rafael Marques de Morais, prominent political activist, winner of numerous journalistic prizes and awards, and founder of Maka Angola, an anti-corruption watchdog focusing on social injustice in Angola.

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Rafael Marques de Morais: “For Press Freedom, I Have Had to Fight to Free the Angolan People from Fear”
Rafael Marques de Morais
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Rafael Marques de Morais has something that defines his whole life: the Civil Courage Prize, which recognises his “steadfast resistance to evil at great personal risk”. Rafael is a journalist and political activist from Angola, fighting government corruption through his online watchdog Maka Angola and the Makaleaks whistleblower platform.

To understand the world of corruption in which Marques lives, he tells us about his last investigation: “A former provincial governor diverted the funds to build schools and a hospital in a rather depressed community, and instead built his own private luxury lodge to welcome foreign hunters to hunt lions and elephants”.

Between 1999 and 2002, Marques de Morais wrote a serie of articles about the diamond trade which gave birth to the book “Blood Diamonds: Corruption and Torture in Angola”According to the Wikipedia, the articles “described the killing and terrorizing of villagers by private security companies and Angolan military officials in the name of protecting mining operations”. In November 2011 the journalist issued a criminal complaint accusing nine Angolan generals of crimes against humanity in connection with diamond mining. This is Marques style. His fight is against fear: “For there to be press freedom, people must speak freely, without fear. So, I have had to fight to help free the Angolan people from the shackles of fear as well. Otherwise, journalism is like building a sand castle near a high tide”.

“On my first trial, in 2000, the two female assistant judges came to whisper to my ear that they were praying for me”

This means becoming an activist: “I have forged my skills under a dictatorship, and there was no way I could just do journalism. I have had to defend and fight for the very space to fulfill my duties as a professional and as a citizen”. Now, he says, we see even in the United States that “many media outlets and journalists are getting bolder, and being activists, as President Trump accuses them of being the “enemies of the people”.

Marques de Morais is proud to have never fought alone: “On my first trial, in 2000, the two female assistant judges came to whisper to my ear that they were praying for me, and wished me Godspeed strength”. He had been left with no lawyer, no witness, in a trial held in camera for calling the President Dos Santos corrupt and a dictator. “But I was not alone, I had the two assistant judges giving me strength. It is the first time I share this story”, he states.

Author: Barbican C. Alex Brenner

Marques doesn’t remember how many times he’s been in prison: “I lost count. The longest I stayed in prison was for 43 or 44 days, but I have been briefly detained many times”. Once, he was arrested while going to buy tomatoes for a salad: “I saw a Swiss human rights researcher being chased by some militias. I stopped to help her, and then I ended up at the police station with my tomatoes in the car”, he says.

Another time, a friend asked him to accompany him to buy fish, early in the morning. Without them knowing it, the police had destroyed tens of fishermen’s huts and houses and forcibly removed the people and dumped them out of the city: “Needless to say, I was blamed as the agitator by the police and briefly held”, Marques asserts.

In 2013, he went to cover the trial of young protesters. He was interviewing them outside the court when “54 special police forces besieged us with machine guns and all the anti-riot gear, and an armored car. We were taken to the Rapid Intervention Police were some of us were tortured and taunted with death threats”. All the action was filmed by a camerawoman because, according Marques, “the regime’s hatred for me inspired them to film my beating”.

He has “a lot of kasfkaesque stories to write about one day, including ambushes”, but he has never surrendered. In 2009 he launched Maka Angola to publish the material he had in excess for his dissertation at Oxford University on “The Transparency of Looting” in Angola. “I wanted to share all the information I had gathered”, he says, as the great journalist he is.

Qurium has been hosting Maka Angola and Maka Leaks since 2016. Maka Angola had received many cyberattacks since he joined Virtualroad, by a colleague’s recommendation: “Every since I have had a peace of mind, for it has become a great line of defence against cyber attacks and I have not been bothered by a single attack since Virtualroad became Makaangola’s host”, he says.

Does Marques de Morais think the Internet is a good or a bad tool for journalists? “It’s only a tool, it all depends on the strength of the journalists who use it for good journalism, vis-à-vis the armies of trolls at the service of authoritarian regimes, and the mushrooming industry of online disinformation”. We’re sure which side is he on.

In 2018 the International Press Institute awarded Rafael Marques de Morais with the World Press Freedom Hero prize

 

This article was originally published by Qurium. Read the original article.

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