GOVERNMENT OF KENYA EXPOSED.

The last one week has been busy, with the Central Bank of Kenya (CBK) releasing its data for the previous fiscal year, the launch of the Women Enterprise Fund Strategic Plan 2021, the sale of a new government bond, and so on. Let’s look at some of the biggest financial news from the last seven days and how they will affect you.

Data from the Central Bank of Kenya (CBK) shows that in the financial year ended in June, the National Treasury borrowed slightly over Ksh1 trillion, pushing the country’s total public debt to a staggering Ksh7.71 trillion. This translates to about Ksh2.8 billion borrowed every single day since June last year.

With Kenya’s GDP estimated to be Ksh10.28 trillion, the country’s debt-to-GDP ratio stands at about 75%. In comparison, Tanzania’s debt-to-GDP stood at 39.2% in October 2020, while Uganda’s debt-to-GDP ratio is projected to cross the 50% mark in the 2021/2022 fiscal year.

Between March last year, when the first case of Covid-19 hit the country to June of this year, the National Treasury borrowed Ksh1.43 trillion.

To put this into perspective, the government has borrowed more money in a year than former President Mwai Kibaki borrowed over the course of his 10-year term. Between June 2003, when President Kibaki read his first budget and June 2013, when he read his final budget, his government had borrowed only Ksh1.2 trillion.

Defending the heavy borrowing, the Treasury claimed that it was necessary to borrow this much following the decline in revenue collection caused by the economic slump brought about by the Covid-19 pandemic. However, critics feel that this borrowing can be attributed to a bloated expenditure and wanton corruption in government.

Left unchecked, such levels of borrowing are going to make things more difficult for Kenyans. Already, the International Monetary Fund (IMF) has forced Kenya into a 3-year program with the aim of reducing the country’s debt vulnerability. Among the measures recommended under this program include reduced spending and increased taxation.

Following the implementation of the program, the government has already raised taxes on things like airtime, cooking gas, and loan fees. The government has also started reducing its expenditure, with public universities experiencing a 26% budget cut.

Data from the CBK shows that between the months of March and May, Kenya’s wealthy individuals and companies moved a record Ksh33.8 billion into fixed deposits, pushing the amounts held by Kenyans in fixed deposit accounts to a record high of Ksh1.567 trillion.

This came at a time when deposits held in foreign currency accounts fell by Kshs34.6 billion between March and May, while the amount of cash in circulation remained unchanged over the two months.

This suggests that Kenya’s rich, who had their money in dollar accounts, were switching to local currency fixed accounts in order to keep their money safe, and at the same time earn better returns on their money, with local currency fixed accounts currently paying a 6.3% return on average.

Analysts believe that this shift from foreign currency fixed accounts to local currency fixed accounts is a direct result of the strengthening of the Kenyan shilling against the dollar over the last few months. In December 2020, the shilling was trading at Ksh110.59 to the dollar, before moving to Ksh109.73 against the dollar in March, and Ksh107.42 in May.

The gains of the Kenyan shilling against the dollar can be attributed to the increased flow of the dollar into the country following the release of new funds from the IMF and the sale of government debt to foreigners.

Sourced from Money 254