Selling an economy for trinkets Part III

The currency trap

When Kenya borrowed the Eurobond in 2014, every dollar that landed in the country became 81 new shillings which should have been invested and grown to pay back the loan plus interest.

But today, with the return on that Kes81 shilling doubtful, we needed Kes130- almost twice as much to repay that one dollar which has meant the government needs to tax us more to pay back that loan. It also means we will need much more shillings as the currency continues to weaken.

Read also: IMF warned Kenya currency strength won’t bring down prices

This has seen the Kenyan authorities manipulate the currency creating secondary problems like regional un-competitiveness and a false sense of stability that could collapse anytime.

When Kenya agreed to take on huge dollar exposures, the authorities knew that foreign currency from exports was falling and only Kenyans living and working abroad, including house helps going to work in slavish conditions in Saudi Arabia, were sending back enough to keep Kenyan currency stable.

They knew if the Eurobond holders needed the debt paid it would wipe out forex reserves kill confidence in the Kenyan shilling and spike the demand for foreign assets, resulting in capital outflows and a pronounced exchange rate depreciation.

If they had a little lesson in history they would have also known that this repayment could face global financial cycles because low interest rates were certain to rise in the not-so-distant future.

Umbrella in the sun, gone in the rain

In fact, Kenya’s currency was quickly tested shortly after Kenya borrowed money from the Financial Markets, global shocks volatility saw rates on the bonds surge indicating a new risk on the economy, the currency.

Kenya approached the IMF for an insurance loan on the currency known famously as the Standby Agreement where the Fund would provide money if Kenya’s reserves would be insufficient to meet the huge oil, food and machine imports and still be able to pay off dollar debts.

But Kenya never drew from these Funds and by 2018 after disagreements with the IMF it was allowed to expire.

Two years later the external shocks that needed to be anticipated by the funds actually took place. With Covid 19 Kenya’s dollar receipts from tourism and exports plunged and demand for the green back to meet extra spending for vaccines and drought materialized.

Kenya’s twin SGR and Eurobond debts were also approaching maturity which would mean more dollars were required than the country could obtain.

Further external shocks from the war in Ukraine meant more dollars would be needed to import food and oil while the Developed World began to increase interest rates to deal with the decades of printing money which meant Kenya could not access Eurobonds to borrow from Peter to pay Paul.

The IMF responded by raising Kenya’s risk of debt distress to high from moderate due to the impact of the coronavirus crisis which had resulted in a drop in the country's stockpile of dollars.

This would trigger Kenya's entry into the four-year IMF-driven structural adjustments that would culminate in street riots, leaving scores dead and hundreds injured from state violence.

Empire strikes back

As the debt crisis became more apparent from Malawi, to Ghana and Ethiopia ratings agencies again found their voices and began downgrading African debts.

Kenya could not access the expensive dollar markets which meant that only IMF and the World Bank could save the country.

Since 2015 when Kenya took its first Eurobond, it has been forced to borrow multiple loans from the IMF which have come with strings attached pushing through some of the highest number of austerity measures and higher taxes and most importantly allowing the shilling to fall.

Since the IMF landed in town, Kenya has imposed value-added taxes on petroleum products and Liquid Petroleum Gas, increased capital gains tax, imposed excise duty on airtime and bank transactions, bank loan fees, scrapped home ownership tax exemptions, increased excise on alcohol and pledged to adjust the duty every year in line with inflation (though this provision was later suspended).

Kenya has also committed to increasing charges on all state services, privatizing water, state-owned enterprises and roads, which will be accessed through toll taxes and started deducting civil servants’ pay to fund pensions.

To seal loopholes, the government had to sharpen the claws of the Kenya Revenue Authority which, through its multi-agency team, cracked down hard on tax evaders and launched a flurry of claims and litigation against small businesses.

The government has also made a failed attempt to tax all businesses even if they make losses through a minimum, turnover and presumptive taxes in different shapes and forms.

Essentially by following IMF advise Kenya joined 23 countries expected to dedicate over 20 per cent of their revenue to external debt payment crippling their economies. ActionAid International Kenya Programs and Strategy Lead Samson Orao, said by advising the Kenyan government to prioritise debt repayment through tax hikes over funding for basic needs, development, and social programs, the IMF has exposed the most vulnerable to an extremely high cost of living.

The IMF, whose sole objective is to stabilize the global financial structure, is averse to any country defaulting because that could trigger a crisis in the global economy has remained adamant. It has issued a half hearted apology while holding onto disbursements so the government can keep some of the policies outside the rejected Finance Bill with the same negative effects.

These tax increases have had a negative impact on the economy and instead of netting more taxes, the Kenya Revenue Authority (KRA) collections have slowed down.

The KRA missed its tax collection target for the full year ended June by Sh267 billion, hurt by reduced corporate profits and job cuts in a period when businesses were devastated by the depreciation of the shilling and high energy prices.

In effect the IMF policies are creating unimaginable, generational poverty, destroying the private sector at a time when Kenya needs jobs to put its exploding population to work, with half the country below 15 years.

The Fund is also pushing Kenya into climate deals that will disenfranchise land from communities barely surviving from decades of colonial confiscation of limited arable land into colonial economy in in tea, flower farms and conservancies.

Debt crisis

When President William Ruto swore to avoid a default whatever cost, he meant the government has to institute a brutal taxation regime aiming to increase taxes by almost a trillion increasing the cost of doing business and wiping out disposable incomes and spiraling inflation.

The Government has also held up Kes700 billion in supplier debts initiating delay tactics like audits to stall suppliers and creating private sector crisis of loan defaults.

This has resulted in a slowing economy, and defaulting on its own citizens as government started delaying disbursement to counties and paying civil servants.

It is also failing its future on lack of vaccines in hospitals, scrapping of school feeding programmes and a review of university fees.

When this year the Kenya Kwanza government decided to push a Finance Bill that would impose even more severe austerity measures and crippling taxes on working people, the center could no longer hold.

Faced with unrelenting peaceful Gen Z teenage protests, the government responded with bullets killing over 50 and maiming hundreds. 

The Ruto administration has deployed the Kenyan Defence Force to the streets unconstitutionally, barricaded major roads and assaulted, gassed, and executed protesters in broad daylight. To this date the government continues to abduct civilians for voicing dissent on social media with some turning up dead or missing.

Odious debt

But what are we paying for? Kenya's violent reaction to protests is essentially Eurobond holders sending authorities to enforce taxes with violence.

It is a disaster unfolding in Kenya where the government is shooting at teenagers, pushed to the streets to resist attempts by the IMF to extract rent for bondholders at the expense of healthcare, education and basic cost of food.

This rent is being sought on debts that border on predatory lending by Western private bankers colluding with corrupt state officials.

Instead of IMF protecting these interest, the questions Kenya public want answered, was whether this is odious debt.

During election campaigns, the opposition leader Raila Odinga threatened to restructure the Eurobond debt if he won the election and he sent the markets off the grid.

There has been several suggestions that the current crisis can be dealt with through declaring the debt odious including litigation by activist Okiya Omtatah and Jimmy Wanjigi who remain outside the political influence.

Imperialism and the future

The legacy of Africa rising narrative is a pile up of debt and imperialism.

Africa's reliance on cheap deposits from an ageing Western population and their peculiar cyclic vulnerabilities over the past few decades has exposed this model’s underbelly.

Instead of prosperity African states like Kenya have been captured and are now being compelled to deregulate their economies and hand over land for green carbon projects.

The land grab is compounding Kenya’s legacy of imperialism where Britain retains control of the country’s only arable land for its conservancies, military, flower and tea corporations in a country that is 80 percent dessert.

As Kenya’s population explodes into the world’s most volatile region, the Great Lakes, the resource pressures will fuel even more conflicts. Already Gulf petrodollars is financing war to displace millions south, to make way for rangelands to address the dessert people's food insecurity.

“If the police arrested you as you watched your livestock graze on a white man’s land (Conservancies in Africa), you would be forced to pay 500 shillings for each cow, and 250 for sheep and goats or the white man would confiscate them. *Darwin Theuri, an activist based in Laikipia County.

The Gen Z crisis should allow us to admit that a people defined by the imperial colonial past cannot imagine a future for those who will live at the end of empire. We should instead listen.

The country needs better focus on its youth who alternatively can deliver an incredible miracle as we have seen in their innovation during this crisis. Mass mobilization on the internet, flags sold via e-commerce, deployment of alternative technological platforms for communication and an appeal to higher moral standards might just be what this country needs.

These young people have technological tools that could bypass all gate keepers in information, agriculture, technology, and hopefully industrial fields. I know that because no media house would have imagined pulling what we have seen on Twitter/X spaces or translate the Finance Bill into local dialects.

If by nothing else, these same Gen Z, by their sheer numbers, will be the ones that will end our need to go for Eurobonds. Kenya and Africa’s only realistic route to cheaper credit to increase savings. Our generations were saddled with dependency where an active worker has the ratio of a a dependent child and a dependent grand parent.

As the Gen Z and Alpha enter the labour market, they are will be more educated working youth than pensioners and children, then savings will triple and the law of demand and supply will bring down the cost of credit automatically.

Instead of crippling the economy in senseless debt, the government should work on improving healthcare so people can be comfortable having less children. They can also then afford to ensure everyone is educated while at the same time setting aside a personal saving that can transform into generational wealth that will go a long way.

A good country takes care of its future, it does not kill it.

Read also: Selling an economy for trinkets Part I