Kenya, Covid-19 and Debt
This blog is part of a series of articles Eurodad is producing in collaboration with our global partners on the implementation of the Debt Service Suspension Initiative (DSSI), complementing and updating the report "Shadow report on the limitations of the G20 Debt Service Suspension Initiative: Draining out the Titanic with a bucket?" published in October 2020. Over the coming months we will publish a variety of articles covering issues related to the implementation of the DSSI and the debt situation in several countries in the global south.
The poverty rate has decreased from 46.8 to 33.4 per cent between 2005 and 2019, and 4.5 million people were able to raise their incomes above the national poverty line during the same period. However, due to a sharp economic downturn and the increasing likelihood of a second wave of the pandemic, these advances are increasingly threatened. Without support from the international community, in the form of increased Official Development Assistance (ODA) and debt relief, Kenya risks being left trapped in a vicious cycle of economic crisis, poverty and debt.
The impact of Covid-19 in Kenya
The health impact of the pandemic in Kenya has been mild. Despite an increase in the number of new cases over the last month, the situation in Kenya compares favorably to other countries in the region. The country has reported a total of 49,997 cases and 920 deaths. This represents a small fraction of the 1.7 million cases and 41 thousand deaths reported for Africa as a whole since the beginning of the pandemic. A factor that helps to account for this evolution is the imposition of strict lockdown measures between March and June of this year. The increase in reported cases of Covid-19 observed since coincides with the relaxation of these measures.
The impact of the lockdown measures on the living conditions of the population
Lockdown measures have had negative effects on the rights of the population. The Kenya Human Rights Commission documented 10 cases of loss of life and 87 varied cases of inhuman and degrading treatment by law enforcement officers. From a gender perspective, 23.6 per cent of Kenyans have seen or heard cases of domestic violence since the introduction of containment measures. These measures have also led to the closure of schools, leaving 15.2 million students in the country unable to attend classes. This will have substantial long-term negative effects on their personal development.
For the economy, the crisis has been a disaster. Nearly 70 thousand jobs have been lost this year. For a country where informal activities account for 83 per cent of employment, this is bound to have substantial negative impacts on livelihoods. Additionally, weak safety nets have prohibited vulnerable families from accessing special government programs. Efforts have been hampered by the lack of a proper physical address system and feeble social safety net systems. Scaling up social assistance programs to provide poor households in rural areas– where poverty rates are over 70 per cent– with basic needs such as food, water and shelter, is paramount.
Financing a response to Covid-19
The capacity of the Kenyan government to protect its population is hampered by fiscal constraints. The country implemented a Covid-19 response plan worth 0.8 per cent of Gross Domestic Product (GDP) in 2020. However, these resources did not represent additional spending. Given the substantial reduction in government revenues of more than 1.4 per cent of GDP in 2020, the government was forced to implement off-setting expenditure cuts elsewhere. Excluding the Covid-19 emergency response, government expenditures fell by 1 per cent of GDP. Taken together these figures show that overall capacity of the government, as measured by public expenditures, has actually decreased during the pandemic.
This dynamic highlights the insufficient nature of the multilateral support provided during the pandemic. In total, Kenya has received US$ 788 million in loans from the International Monetary Fund (IMF) and the World Bank. In addition, on November 3, it was announced that Kenya was seeking a second loan from the IMF. So far the country has refused to participate in the G20 Debt Service Suspension Initiative (DSSI) over concerns of its impact on access to international financial markets. This is a puzzling decision as official debts represent around a third of the country’s total public external debt. Kenya is paying an interest rate between 6.9 and 8.3 per cent on its Eurobonds. A credit risk downgrade could potentially increase these rates and make it impossible to refinance its debts in the near future.
Going forward, the economic strategy of the government hinges on the expectations of new external financing and a substantial consolidation plan. If any of these elements fails to materialise, the country would find itself in an extremely precarious situation.
Kenya’s public debt is projected to reach 69.8 per cent of GDP by 2023. An increase of over 10 percentage points over pre-crisis levels. Public debt service is expected to increase from 9.8 to 12.9 per cent of GDP between 2019 and 2023. Without access to additional support in the form of concessional financing and debt relief, the country will struggle to meet creditor claims in the coming years. This becomes clear in the context of the consolidation plan outlined in the IMF programme document. The IMF debt sustainability assessment for the country establishes the “need for sustained fiscal consolidation… over the medium term”. In concrete terms, Kenya is expected to reduce public expenditures from 22.4 to 19.2 per cent of GDP between 2019 and 2023. A reduction of public expenditures to below pre-crisis levels will create massive social and economic tensions within the country.
Fiscal consolidation would leave the country ill-prepared to face the impacts of climate change. Kenya faces extreme climate events. Most recently, the country experienced a massive locust plague, which scientists have linked to climate change. The climate emergency has already had a devastating impact on communities livelihoods, and will continue to do so. A government with decreasing resources to tackle the consequences of climate change and broader development commitments under the 2030 Agenda, is a guarantee for humanitarian disaster.
Even if an agenda of adjustment and debt could be achieved, it is clearly not desirable. The satisfaction of basic human rights of the Kenyan population cannot be left behind creditors interests. Given the high degree of debt risks faced by the country, it is clear that it is a prime candidate for debt relief. An ambitious debt relief program would alleviate the financial burden of the country, allowing it to increase investments in its own development. Unfortunately, the G20 is set to roll out yet another disappointing and insufficient initiative to address debt vulnerabilities in developing countries. The hardships to be faced by the Kenyan population over coming years are a direct result of the incapacity of the G20 to rise up to the defining challenge of our time.
This guest blog was authored by Robert Ssuuna, the policy lead for tax and international financial architecture at Tax Justice Network Africa (TJNA) in collaboration with Eurodad's Debt Justice team.