Global Policy Forum

By Kamau Kaniaru

While Kenyans clamour for the quick resumption of International Monetary Fund lending, in Thailand, they are vowing to never again borrow from the IMF. Led by Prime Minister Thaksin Shinawatra, Thai's are celebrating their recent success in repaying in full a $12 billion IMF loan a year ahead of schedule. Mr Shinatwara describes IMF debt as an awfully painful experience for the whole nation, and exhorts Thais to never again be indebted to the institution.

Thailand borrowed $12 billion to stabilise its economy during the 1997 Asian financial crisis. Although they needed the money during the crisis, Thais found the IMF conditionalities unpalatable. They successfully resisted the Fund's demand for the VAT rate to be raised from 7 to 10 per cent. However, the Thai Government was not so successful in other areas and had to enact 11 economic reform laws at the behest of the Fund. Now, with the loan fully repaid, Thais cannot wait to reverse the IMF-dictated legislation. Parliament is soon expected to amend the 11 economic reform laws enacted as a condition for obtaining IMF loans.

What a contrast? Kenya is literally begging to become more indebted to the IMF despite being saddled with an onerous burden. With foreign debt exceeding $5 billion and domestic debt of around $3.5 billion, Kenya's annual debt repayments currently consume more than 30 per cent of the annual budget. The budgeted allocation for debt repayments amounted to $1.3 billion in 2002. This year, debt repayments will consume approximately $1.53 billion, a figure equivalent to 67 per cent of Kenya's 2002 export revenues.

At this rate, can Kenya take on more debt from the IMF and other sources and still aim to achieve renewed economic growth? Significantly, is it possible to achieve a reduction in the extreme poverty trapping more than 60 per cent of Kenya's population while taking on more debt and spending more than a third of the national budget on debt repayment?

With an allocation of Sh114.7 billion for debt repayments out of a total budgeted expenditure of Sh334 billion, Kenya will spend 34.3 per cent of the total national budget on debt repayment in 2003/2004. The amount allocated to these ends exceeds the combined budgeted expenditure on education, science and technology (Sh80.37 billion), health (Sh21.12 billion) and water resources (Sh6.6 billion). Putting aside the budgeted spending on water resources, the projected spending on debt repayment still exceeds the combined budgeted spending on education, health, and Roads and Public Works.

The size of the country's debt repayment burden should give Kenyans something to worry about. Clearly, the Government is spending money on debt that it should be spending on providing quality education. While millions of Kenyans lack safe drinking water, money that should be invested in water resources development is going into debt repayment. Money that should be going into rehabilitating and strengthening agricultural extension and research services is going into debt repayment. Taking the analysis further, a connection begins to emerge between inadequate spending on education, health, water resources, agricultural development, roads infrastructure and the debilitating poverty trapping some 18 million Kenyans.

Why then is Kenya literally begging to take on more debt when the existing burden is already contributing to more widespread poverty? How will taking on more debt help Kenya's 18 million abjectly poor people if the extra debt will translate into a heavier repayment burden?

Would it not make more economic sense for Kenya to actively campaign for debt write-offs?? When debt repayments eat into funds that should be spent on human development, taking on more is bound to perpetuate poverty. Before long, the absolutely poor will grow to 20 million, maybe more. In the meantime, Kenya will still require more debt from the IMF, World Bank and from bilateral sources to fund universal primary education, universal health-care and safe drinking water. More will still be required to both expand and modernise transport and infrastructure.

The scenario requires new thinking. Like Thailand, Kenya must begin to depend more on its internally-generated resources rather than on funding from the IMF, World Bank, bilateral sources and others.

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