Time to renegotiate loan repayment plans

The economic upheavals wrought on nations by the coronavirus pandemic will take years to heal.

Economic experts predict that the unfolding recession will be worse than any seen in recent decades.

According to projections, it could be worse than the 2007/8 recession that was caused by the failure of the financial systems arising from the sub-prime mortgage crisis that started in America.

This time round, estimates by the International Monetary Fund show that the Gross Domestic Product (GDP) for most countries will be around one per cent.

Here at home, the government had earlier projected that the country would realise GDP growth of about six per cent, not far off from last year’s.

However, this was revised to about three per cent, but with the unfolding scenario where industries are closed, businesses are collapsing and productivity drastically diminished, the growth rate would be even far lower.

Yet as the economy tanks, the government is under obligation to provide relief to cushion citizens from the devastation of the pandemic.

It is in this regard that the government has offered tax waivers and introduced social relief to support the needy and the elderly. But this has a cost.

Treasury Cabinet Secretary Ukur Yatani has estimated that because of the relief, the State is set to lose some Sh172 billion in uncollected revenue.

Largely, our problem is self-inflicted because of poor financial management. For the past six years, the government has been on a spending spree on capital development using borrowed cash.

Cumulatively, it has piled up debts to near-unmanageable levels. To make matters worse, those development projects have been a rip-off; costs are ridiculously inflated to create avenues for kickbacks while some are never executed but the cash is disbursed.

The bottom line is that Kenya is heavily indebted and, with the current crisis, cannot afford to pay back the loans.

Indeed, Treasury estimates that Kenya needs to pay more than Sh300 billion to its lenders in the next two months, a figure hard to come by at this moment.

Given the circumstances, and as we have argued before, the government needs to renegotiate these loans.

This past week, President Uhuru Kenyatta announced that Kenya and other governments in the region are engaging multilateral and bilateral lenders to renegotiate the loans, with emphasis on waivers of interest and extensions on the repayment period.

Along with that, they should also ask for total waivers on some of those loans. Even so, should the negotiations succeed, the money freed from the loans must be put into proper use.