Wednesday, 4 January 2012

Kenya: Debt and Debate

I've had permission to reproduce here an email from Ed Le Quesne about Kenya's economy, and also the comments on the state of play by his son John on the figures. Ed notes that:

John was born in Kenya but left with us when he was 6 months old.   He came with me on a visit to Kenya last June.   We have lively debates about how far Kenya is the author of its own problems or still suffering a colonial hangover.

Technical terms used are "internal debt" and "external debt". These are

External debt (or foreign debt) is that part of the total debt in a country that is owed to creditors outside the country. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions such as the International Monetary Fund (IMF) and World Bank.

Internal debt owed by a government (money a government borrows from its citizens) is part of the country's national debt. It is a form of fiat creation of money, in which the government obtains cash not by printing it, but by borrowing it. The money created is in the form of treasury securities or securities borrowed from the central bank. These may be traded but will only rarely be spent on goods and services. In this way, the expected increase in inflation due to the increase in national wealth is lower than if the government had simply printed the money and increased the more liquid forms of wealth (i.e., the money supply).

Public borrowing may become costlier for the government especially when it resorts to public borrowing by issuing bonds and debentures. Such bonds and debentures carry a high rate of interest to the extent of 15 percent. The impact of such interest payments may develop manifold and still worsen in the future if the government stick to the same policy of borrowing in the years to come.

This means that the "internal debt" is to some extent misleading. It is generated by the government issuing treasury bonds (and the like) on which interest is paid and while it is structured so that it can only be used internally, it can be used as a form of collateral for external debt.

For instance, in Kenya, treasury bonds are restricted to: (1) Resident or non-resident individuals and/or corporate bodies who hold an account with a local commercial bank (2) Resident or non-resident individuals and/or corporate bodies who may not have an account with a local commercial bank but invests as a nominee of a commercial bank or investment bank in Kenya. However, there is also this note:

Treasury Bills are not traded at the Nairobi Stock Exchange. However, investors may pledge them as collateral (or for lien creation) security against credit facilities (loans), and may also be transferred among holders of CDS accounts. CDS Statements are adjusted accordingly to reflect these transactions. Commercial banks also use them as collateral for liquidity management through Repurchase Agreements (Repos) and Intraday Liquidity Facility (ILF).

Here are the emails:


You may have read about the pressures on Jersey to bring in a law to stop vulture funds using the Jersey court to claim a large sum from Congo.  As part of our response to the States consultation paper,  Christians Together in Jersey invited Tim Jones from the Jubilee Debt Campaign  to visit Jersey and talk about the debt issue,  He was an excellent speaker and we have made our submission on this issue to the States and await their response

Tim has done detailed research recently on the debts owed by Zimbabwe.   Some of these debts go back to loans to Ian Smith to maintain UDI in Southern Rhodesia!  Others were given as they tried to rebuild the country.  Jubilee Debt Campaign is calling for an audit of all their debts to judge whether they are legitimate. 

I have much more information about Zimbabwe but I also asked about Kenya and got the reply below from their website

Total external debt: $6.8 billion
Total external debt payments: Kenya gives $364 million each year to the rich world in debt payments
Total debt payments: Kenya allocates $1.6 billion a year to paying debts, including domestic debt*
UK debt: Kenya owes approximately £20 million to the UK
Population: 33 million
Average income: $1.32 a day per person
Percentage of adults who can read and write: 74%**
Average life expectancy: 48 years
Total health spending: $430 million a year*
(All figures 2004, except * are 2005/06 and ** is 2003)
Debt cancellation status
Kenya is officially classed as a low-income country by the World Bank. It is considered to have a 'sustainable' debt: this is measured by the size of external debt in comparison to the value of exports, without taking into account domestic debt or what Kenya needs to spend on tackling poverty. It is therefore not eligible for the Heavily Indebted Poor Countries initiative or the Multilateral Debt Relief Initiative. It is theoretically eligible for additional debt assistance from the UK, but has not met the conditions required to qualify.

What do campaigners say?
"We ask the Government of Kenya to be firm and united with debt campaigners in demanding 100% unconditional cancellation of Kenya's external debt, in order to release funds for the country's and people's sustainable development. Our debt is largely odious and illegitimate, contracted by a corrupt ruling elite and conveyors of the creditors out to make money. This is a matter of justice. We have paid this debt many times over, through direct monetary repayments, and through colonial and post colonial injustices by the creditors."
Njuki Githethwa, KENDREN (Kenya Debt Relief Network)

Last updated: April 2007

From Jubilee Debt Campaign website

It shows that Kenya  is  paying  almost a  million dollars a day to the rich world, or was in 2007, and little has changed since. This is more than their spending on health.   This is why those who support the work Hezron is doing through our donations should also give some support to campaigns on the campaigns for justice that are run by a number of agencies, including Jubilee Debt Campaign, Oxfam, Christian Aid etc.

I certainly look forward to seeing the report that Tim produces in the next two months.

Best wishes


John Le Quesne:

It looks like Kenya's debt payments are mostly internal (total debt payments are $1.6 billion and external debt payments are only $364 million or less than 25% of this). This means that the total debt repayments wouldn't change that much even if all the debts were repaid. Also, bribery / corruption is estimated at $1 billion a year!

I also did a chart comparing Kenya's debts to those of the UK (based on World bank figures) for my benefit with all the debates we hear over here - I used 2010 figures in USD to take currency out of the equation. Kenya has less debts than us on all measures! Also our debt figures are potentially rather understated as if we included pension liabilities + PFI etc, the public debt % would at least double! The other difference is the GINI index which is a measure of the inequality of distribution. In this case 0 means everyone has the same and 1 means all the income is with just one person. In this case, the UK is a more equal society (btw Namibia is the worst, Sweden the best).

Kenya: 66 billion
UK: 2.17 trillion

GDP per capita
Kenya: $1,600
UK: $34800

Debt (external)
Kenya: 8.46 billion
UK: Not quoted

Debt per capita
Kenya: 210
UK: Not quoted

Kenya: 7.02 billion
UK: $908 billion

Kenya: 9.04 billion
UK: $1140 billion

Budget surplus (% of GDP)
Kenya: -6.30%
UK: -10.30%

Kenya: 11.2 billion
UK: $563 billion

Kenya: 5.22 billion
UK: $410 billion

Public debt (% of GDP)
Kenya: 47.70%
UK: 76.10%

Distribution of wealth (GINI index)
Kenya: 42.5
UK: 34

Its a murky world.


Tom Gruchy said...

In my November 2010 posting on the subject of Vulture funds and the DRC case in particular I named Applebys and Ogiers as two of the Jersey law firms involved.
In a previous quote Gillian Robertson of Applebys was quoted as saying that the case showed "Jersey's legal system as a global best for a small jurisdiction."
Of course during the recent Senatorial elections ALL the candidates were of one voice in condemning Jersey's role in this. It was especially notable since Sir Philip Bailhache, Jersey's former Bailiff - now Senator - was one of the candidates and he could have made such comments at any previous time during a long public career.

When the case appeared in the Jersey Court, Jurat Tibbo was one of those hearing it and he of course is a long standing banker and ex member of the Jersey Finincial Services Commission.

I wonder at what point should our "leaders" wake up to the realities of the finance industry in Jersey. How long should they be allowed to carry on as though their silent participation is blameless and who are the lawyers accountants, bankers and others who enable these dubious businesses to trade behind respectable, professional fronts?

I have no idea whether Ogiers or Apllebys have acted in a good or bad way but it must be time for such buinesses to be called to account for their actions and for the individuals involved to be identified.
As is said elsewhere, if they have nothing to hide they have nothing to fear - but it must be no longer acceptable for such businesses as Vulture funds to operate secretly or under cover of Jersey's reputation.
The exposure of this business, as with so many other aspects of the finance industry must start here in Jersey. The roles of ex Bailiffs and other regulators must also be analysed,scrutinized and discussed.
It is a Jersey and world-wide responsibility for us so to do.

James said...

Quoth Tom Gruchy:

In my November 2010 posting on the subject of Vulture funds and the DRC case in particular I named Appleby and Ogiers as two of the Jersey law firms involved.

...Appleby, of course, being the successor to Bailhache Labesse, itself the successor to Bailhache and Bailhache.

Source: here