By Ndung’u Wainaina
Worth Noting:
- Central Bank, Treasury, State House and local commercial banks have been accusing of running domestic loans syndicate fraud for long. CBK loans local Commercial banks public money (taxes) at low interest and use it to loan back to government in form of T-Bills and Bonds at exorbitant interest. This is double payment by tax payers. The banking sector is a strange part of the economy because of this contradiction. Ideally,
- CBK is not supposed to have any links to fiscal policy. But since they are bankers to the government in the Kenyan context, this principle gets breached regularly. In order not be accused of anything, CBK is not in a position to tell banks what rate they should lend at.
Businessman cum politician Jimi Wanjigi launched ‘Axe The Tax’ campaign late last year urging Kenyans to boycott paying tax. Former Deputy President Rigathi Gachafgua has launched ‘Rescue Payslip’ campaign against highly punitive taxation.
President William Ruto is on overdrive aggressive and oppressive imposition of taxes, levies and fees on the people of Kenya. He claims his government has ‘turned corner’. Kenyans are unconvinced. The debt servicing and reckless wasteful govern spending are the biggest expenditure. There is very little if anything going to National MDAs for development and Counties are crippled. Kenya has the worst economy ever for past decades. Claims that inflation has declined and life is becoming better are illusions. People are suffering and their pockets are empty. State House and Treasury bubble is disconnected with reality.
Central Bank, Treasury, State House and local commercial banks have been accusing of running domestic loans syndicate fraud for long. CBK loans local Commercial banks public money (taxes) at low interest and use it to loan back to government in form of T-Bills and Bonds at exorbitant interest. This is double payment by tax payers. The banking sector is a strange part of the economy because of this contradiction. Ideally,
CBK is not supposed to have any links to fiscal policy. But since they are bankers to the government in the Kenyan context, this principle gets breached regularly. In order not be accused of anything, CBK is not in a position to tell banks what rate they should lend at. It is critical that all prices in the economy are market driven. In our case now, is the CBK responding to its own signals or is the market sending a signal to it?
According to the CBK, the essence of loans to commercial banks is supposed to bring down interest rates for businesses and individuals to access credit at lower interest. This is not happening. There is a criminal fraud to the economy by CBK and local Commercial banks.
A more than decade long debt binge, which is still going on, the poor have only gotten poorer, and are now getting criminalized by cruel Ruto regime.
In February 2024, the country had to offer a double-digit interest rate to roll over most of its $2b June 2024 bond. Already the country has been lent $1.5bn by international financiers at a staggering 10.37% interest rate. The worst thing is that none of the money will be invested. It has been used to pay a previous debt to the same companies with $155m leaving the country every year, and the Kenyan people see nothing in return. We must stop this borrowing madness.
To illustrate simply how Kenya government is operating, if you were to go to the bank and get a loan, and off the top the bank said we will steal 30%, and then we will charge you 15% annual interest rate. You actually get $0.40 on the $1. Those are the terms Kenyans are currently getting from the government. It is the worst debt trap.
Kenya has already defaulted. Unfortunately many especially in government circles think otherwise. The default is not reflected in the bond payments. It is ion the fundamental obligation to the future of Kenyans.
Right now, it is the future income of Kenya’s population that is being leveraged in debt. They have gotten and will get nothing in return in this debt criminal syndicate. The money is already spent, only collections remain. Claims that the country’s default is economic Armageddon, is a lie by politicians and treasury bureaucrats fearing they cannot borrow against the Kenyans’ future income anymore.
It is not that a default will not have consequences. We know the consequence will be the stealing credit card getting cut up, and austerity for the politicians’ interest. There are those who say austerity is awful and that services will have to be cut. Tragically, what has debt brought to the bottom 90% of Kenyans? Their incomes have kept only declining in inflation adjusted terms.
In the last two years of Ruto regime, the average Kenyan’s income has fallen by 12%. A Kenyan worker earning KShs. 50,000 monthly now takes home Kshs. 39,000 instead of Kshs. 41,450 – This is not a theoretical default. It is the real default happening now, every day, in diminished wages and lost opportunities. In the last 12 years, in inflation adjusted income of the bottom 80% of Kenyans has only declined, despite mountains and mountains of debt for “development” programs. Example: Some who was earning Kshs. 25,000KSh a month in 2019 is today earning $147 now instead of $250. This is how poorer Kenyans have become with wages having been stagnant on the lower income bands and country becoming more import dependent.
The T-Bills, bonds and debt: What most Kenyans don’t understand is that for every infrastructure bond, every Eurobond, and every new debt instrument, it is selling the future Kenyan earnings at a steep discount in advance. Last year, KShs. 240 B infrastructure bond at 17% interest over seven years calculations are unbelievable: Kenyans will pay Kshs. 408B (the original 240 billion plus 168 billion in interest). Get this: before a single road is paved, 41% of the commitment repayment is already to creditors.
Move one step further: Subtract what the Auditor General calls “leakage” – the consistent 30% of public funds that vanish to corruption. Of the original KShs.240B, KShs. 70B is redirected to private accounts. What remains for actual infrastructure? Maybe if lucky KShs. 96B which 23% of the total borrowed is what might materialize as roads, bridges, water systems, schools.
What is the brutal truth here: That KShs. 408 B of future wages and taxes of Kenyans in exchange for KShs. 96B has just gone. This is precisely what politicians and bureaucrats have done with the incomes of the people of Kenya. This is not only a default but explicit sale of future earnings of Kenyans. Local and foreign creditors understand this crude game very well. They market these bonds as ‘high-yield frontier market opportunities’. However, the reality is that they are buying Kenyan future earnings at a discount while knowing the IMF will ensure repayment. Remember the bad System?
With this economic crime in form of debt, there sectors area flourishing namely: Bank Stocks and Land. Banks have discovered a perfect business model: Borrow at an average of 2.8% from customer deposits, lend to the government at 15%, and pocket the spread with zero risk. Banks profits and stocks soar. Telcos are not left behind. They have become de facto banks. Telcos are extracting fees from every transaction in an increasingly cashless economy.
Land is the other sector where the massive profits from this fraud financial extraction is happening. Land prices skyrocketing reflecting not relationship with actual wages and incomes in the country. This is happening because clearly in an economy where the vast majority are going on less and less there is no any productive investments to be made. But it is a shell game for the elite. Simply: The debt is a criminal racket bringing together the local and foreign actors.
Remember like about 10 years ago everyone said Somali piracy money was what was driving up real estate costs in Nairobi: The reality is the 30% of the stolen budget that goes missing annually combined with the banks’ spread between depositors and T-Bills.
Rather than confronting this criminal syndicate, the IMF and local brokers proposed solution is more debt, more tax to pay off old debt. Kenyans are lied to as it is “preventing default” . The default occurred long ago. Every new loan, every refinancing, every IMF program simply extends and deepens the mortgaging of the Kenyan’s future at a discount. We must stop this crime.
The catastrophic human consequences of this crime debt, taxation and discounted future are being witnessed everywhere in our daily lives education, health, food, jobs, etc. The beneficiaries of this system are the banks, the bondholders, the politicians, bureaucrats, and land speculators. They have essentially purchased put options on the average Kenyan’s future.
Kenyans must stop this racket of selling Kenya’s future. We must understand that this clearly: The default means not the missing of bond payments that the IMF fears. It is the default already visited upon millions of Kenyans whose futures have been discounted, repackaged, and sold as “high-yield opportunities” in the global financial markets. That is the default that should concern us, and that is the default that no amount of new debt can cure.
Finally, Kenyans enemy is President Ruto who is the purveyor of selling them and country to creditors. It is local commercial banks take Kenyans money and buy government bonds at 16%, charge consumers an average savings rate at 3%, and the very savers they charge are the taxpayers who have to pay back those bonds. They perpetuate this cruel poverty trap on us. It is IMF which facilitates the theft of future by securing the borrowers who have been getting 9n 70 11% Interest rates out of Kenya. Kenyans know who IMF is effectively guaranteeing a bail-out. IMF is not bailing out Kenya. It is bailing out Eurobond investors
Kenya is the only EAC country that experienced a protracted fall in its Tax-to GDP ratio. This is not because of Mama Mbogas are not paying taxes. It is because of the top 1%. All the wealth is in the top 1% who expertly dodge. The average Kenya has gotten poorer over the past 10 years. They are not the tax problem. 80% of the 15.3 million working Kenyans have incomes that cannot cover basic needs but they are people President Ruto wants to tax more to pay his crooked creditors.
The Writer is Transitional Justice and Human Security Fellow @NdunguWainaina
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