President Ruto's comparative public debt numbers are not factual and misleading beyond the hard numbers

It appears the public debt question will remain a thorny issue in our public discourse for a long time to come. At the Katiba Day Symposium last week, the president drew a comparative on the amounts of debt accumulated by himself in his four years in office and those of his two immediate predecessors.

According to the president, the debt has only grown by 27 per cent in his four years in office, while Kibaki and Uhuru Kenyatta added about 300 and 500 per cents respectively. Based on these figures, his administration would appear to have forestalled debt accumulation compared to those other two presidents.

Wrong indicators

However, these computations are not only mathematically incorrect but also analytically misleading. For example, this analysis is highly simplistic, picking only data points at which each president assumed and vacated office. It completely ignores the fact that while in office, each president would have paid maturing debt obligations accumulated by their predecessor.

Therefore, the correct indicator to assess the actual debt load each president added to the public debt portfolio is their net debt add. Based on the Central Bank-published data, for his entire term in office between January 2003 and March 2013, the late President Kibaki added a net of 185.06 per cent (sh.1.165 trillion) to the public debt portfolio. Former President Uhuru Kenyatta net debt add was 382.73 per cent (sh.6.869 trillion) between April 2013 and August 2022.

Under the same metrics, President Ruto has net debt add of 48.86 per cent (sh.4.233 trillion) between September 2022 and May 2026, the last month the data is available. This excludes off-balance sheet borrowing acquired through Public Private Partnerships and Securitization programmes like in the cases of the SHA system, Roroni-Mau Summit, Talanta, Bomas Complex, extension of Standard Gauge Rail (SGR) and Jomo Kenyatta International Airport upgrades. Unfortunately, the actual commitments into these projects remain vague to the publics, making it difficult to establish the actual debt load added.

Notably, the Ruto administration has adopted a cunning strategy of kicking the can down road to the chagrin of multilateral and credit rating agencies. For instance, within the four years of his term, the National Treasury refinanced the first Kenyan Eurobond bullet payment of US$ 2 billion that was due in June 2024, in exchange of a US$1.5 billion new bond that matures in 2031, only a year before his constitutional term limit ends, if he is lucky to get re-elected.

In February 20 this year, Treasury issued another sovereign bond of US$2.25 billion to refinance near-term debt maturities, specifically notes that had maturities of 2028 and 2032. The new notes have are a dual-tranche with maturities of 2034 and 2039, long after the sitting president has vacated office by deed of the constitutional term limits. This is in addition to restructuring other off-balance sheet loan facilities like the SGR loan held in the books Kenya Railways.

On domestic debt obligations, this past month's Treasury has engineered a new strategy to switch maturing Treasury bills and bonds in exchange of notes with matching repayment dates or switching near maturities with other medium-term notes that again pushes repayment dates outside the president’s constitutional term limits.

More importantly, while the current administration pretends not to accumulate new debts, they have locked taxpayers into opaque multi-billion infrastructure contracts that would demand user levies or that have securitized future levy collections like in sports and tourism. Besides, the administration has succeeded in privatizing and disposing two key cash cow public enterprises, Kenya Pipeline Company and Safaricom. At least, the Uhuru administration did not succeed in disposing any public enterprises, except for unlawfully swiping surplus reserves that were held by State-Owned Enterprises.

Coin has two sides

Furthermore, focusing on the absolute debt narrative is further misleading for it ignores the revenues that were or are at the disposal of each of the three president’s from taxes and other internally generated sources.

In a previous article in this column, I have demonstrated that President Ruto’s administration collects annually more than the total revenue ever collected by the Kibaki administration in its entire term in office. Annual revenue collections in the past three years have similarly outperformed those of Uhuru’s administration by almost double over a similar period in office.

However, the most important question is not about who borrowed what or how much, but where did the borrowed money go?

In theory and by deed of Chapter twelve of the constitution, public debt can only be used for development expenditures. The purpose of this constitutional guideline is to ensure borrowed funds go into investments that benefits both current and future generations. That way, every generation would be able to meet their own obligations without unnecessarily burdening future ones.

Based on this understanding, we’ll need to evaluate the contributions of the borrowed funds into the economy and the general welfare of the publics. In economics, the Gross Domestic Product (GDP), while still imperfect, it is the only single composite indicator that can tell us performance of the economy.

Using the same Central Bank data, the real GDP, that is, after factoring for inflation, grew by 520.96 per cent between 2003 and 2012, the term of Kibaki in office. During Uhuru’s term, the real GDP grew by a mere 54.71 per cent while in the three years of President Ruto, it grew by only 15.77 per cent. Implicitly, the UhuRuto eras have little traceable impacts on the domestic economy despite huge revenues and debt accumulations. Simply put, with so little resources at his disposal in comparative, Kibaki’s administration dwarfs Presidents Uhuru and Ruto’s administrations where it matters most.

With this second side of the coin in mind therefore, the real conversation on this debt question aught not to be about who borrowed what and where, but about whether the Kenyan people have gotten value and return on investment from what was borrowed. In literature, the primary drivers of the debt binge in Kenya are political cycles, fiscal deficits and elite interests. It is an open secret that political elites shape debt policies to favor their domestic commercial interests and local networks rather than advance broad public welfare.

The consequences of this reckless debt accumulation is stagnation of economic growth as available revenues go to debt repayment as opposed to providing education, healthcare or security. Secondly, accelerated debt accumulation leads to higher taxes and inflation as the government may be forced to print money to pay maturing obligations. This eventually erodes purchasing power, ultimately making the everyday cost of living very expensive for ordinary people.

On the social level, uncontrolled debt accumulation will eventually lead to budget cuts to key services, job losses and an increase in poverty for local communities. Further, elevated default risks make the country’s business operating environment toxic, hence scaring away capital.

Any Kenyan with reasonable objectivity can notice all the negative indicators in the labor market, at household incomes and in business. The Bretton Wood institutions and credit rating agencies are shouting too. What we need is a candid conversation on how to get out of this debt quagmire, not a blame game!