Debt and Kenya’s economic crisis

Last month there were huge protests against tax rises in Kenya. The tax increases, including sales tax on essentials such as bread and cooking oil, were proposed in response to the country’s debt crisis. Horrifically, during the protests 39 people were killed by Kenyan security forces. In the end the government dropped the proposed tax increases and has now launched a debt audit to look at alternatives.

Our partner, the African Forum on Debt and Development (AFRODAD) have said the cause of Kenya’s economic crisis is the size of its debt, a result of “a combination of irresponsible lending by developing partners including the International Monetary Fund (IMF), and an unsatiable appetite to borrow by the government of Kenya”.

In the 2010s there was a large increase in lending to Kenya, particularly high interest loans from Western financiers such as BlackRock, alongside lower interest loans from Chinese lenders. But the huge increase in loans did not lead to having more money to spend on people’s needs.

After the Covid pandemic began in 2020, and with global interest rates rising, new external loans from China and Western private lenders shrank dramatically.

Into the gap stepped the IMF and World Bank. New loans from these two Western run institutions have helped Kenya keep paying the Western finance companies and China. In return they demanded that Kenya cut public spending and increase taxes. Protestors against the tax rises last month specifically called out the role of the IMF and World Bank in demanding the government introduce austerity measures.

Between 2017 and 2022 real public spending per person (not including interest payments) fell by a huge 15%. In 2024, the Kenyan government will spend less per person than it did in 2015.

This is disastrous for the Kenyan people. According to the National Taxpayers Association, a Christian Aid partner in Kenya, “the reduction in spending in social sectors is manifested in lack of essential services in health and education facilities.”

As AFRODAD say, Kenya needs more “responsible lending and borrowing”. Both the government AND lenders, should have ensured loans were well used, contributing to Kenya’s development agenda. As it is, new loans now are just being used to pay old debts, leaving Kenya’s citizens further indebted.

In February 2024, Western banks and finance companies lent Kenya $1.5 billion at an outrageous 10.4% interest rate – all of which is just being used to repay previous loans. In contrast, governments such as the UK and Germany can borrow at 3-4% interest. A World Bank loan was also specifically used to pay off Western lenders, effectively using money which is meant to be invested in development projects to subsidise Western company profits.

Jason Braganza, Executive Director of AFRODAD says the alternative for Kenya is not more debt, but for the government to sit down and negotiate with its creditors. Fadhel Kaboub from Power Shift Africa has called for debt cancellation for Kenya, and grants (not loans) for climate action.

Kenya could in theory apply for debt relief through the G20’s Common Framework for Debt Treatment. However, it is reluctant to do so, after Chad received no debt relief, and the years of delay Zambia experienced.

Rather than bailing out rich reckless lenders, the international community needs to give countries like Kenya a debt cancellation mechanism that works and that governments want to use.

The UK government could play a key role in this. All of Kenya’s debts to Western private creditors are governed by UK law. The UK could make legal changes to drastically improve the system – something we are calling the debt justice law.

Firstly, it could introduce legislation which would suspend debt payments when a government enters a debt relief process – as happened for Ukraine, but which creditors refused for Zambia – avoiding a formal ‘default’ and the way this can be presented as failure.

Secondly, the UK could replicate a 2010 Act to ensure that private lenders receive no more back than public lenders after debt relief. This would make the system work faster, ensure no private lenders could hold up negotiations, and reassure China that the debt relief it gives will not be used to pay off Western companies.

We have made strong progress getting the debt justice law on the agenda, with the Labour party committing in its manifesto that “tackling unsustainable debt” will be one of its international priorities. For the people of Kenya, and those in indebted countries around the world, the new UK government should take urgent action to help governments address the debt crisis.


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