The immediate trigger for the raging protest that gripped Kenya’s capital city on Tuesday was a raft of proposed tax increases — additional shillings that ordinary citizens would owe their government. The underlying cause, though, are the billions of dollars their government owes its creditors.
Kenya has the fastest growing economy in Africa and a vibrant business center. But its government is desperate to stave off default. The country’s staggering $80 billion in domestic and foreign public debt accounts for nearly three-quarters of Kenya’s entire economic output, according to a recent report from the United Nations Conference on Trade and Development. Interest payments alone are eating up 27 percent of the revenue collected.
The violent reaction to Parliament’s approval of the tax bill prompted Kenya’s president, William Ruto, to abruptly reverse course on Wednesday and refuse to sign the legislation he had asked for.
But the debts that are causing misery in Kenya and across Africa remain. More than half the people on the continent live in countries that spend more on interest payments than they do on health or education.
“The kids in this generation that won’t have education today are going to be scarred for life,” said Joseph Stiglitz, a former chief economist at the World Bank. He noted that there had been increasing evidence that “countries who go through a crisis don’t recover — maybe ever — to where they would have been.”
The global debt crisis is the relatively bland label used to describe the brutal loops of unsustainable borrowing and bailouts that have long ensnared developing nations. This latest cycle — considered to be the worst on record — was precipitated by events far beyond any single country’s control.
The deadly coronavirus pandemic shuttered already fragile economies. The sudden need to provide vaccines, medical care, protective clothing to hospital workers and subsidies to people unable to afford food or cooking oil further depleted government bank accounts.
A war between Russia and Ukraine along with sanctions imposed by the United States and its allies caused global food and energy prices to soar. The wealthiest countries then corralled spiraling inflation by raising interest rates, causing debt payments to balloon.
On top of those woes, recent floods in Kenya destroyed infrastructure and agricultural land and displaced thousands of people.
M. Ayhan Kose, deputy chief economist at the World Bank, said “40 percent of developing countries, in one way or another, are vulnerable to a debt crisis.”
Finding a solution to the current debt trap that poor and middle-income nations find themselves in is harder than ever.
Thousands of creditors have replaced the handful of big banks in places like New York and London that used to handle most countries’ foreign debt. One of the most consequential new players is China, which has been lending billions of dollars to governments in Africa and around the world.
Starting over a decade ago, China elbowed its way into the ranks of major lenders to emerging nations and the size of its portfolio now rivals the International Monetary Fund and the World Bank.
Of the $37.4 billion in foreign debt that Kenya owed at the end of 2022, at least $6.7 billion was owed to China, according to the I.M.F.
To avoid default, countries like Kenya are compelled to borrow even more money, only to find that their total debt burden grows even heavier. And the bigger the debt, the less inclined lenders are to offer additional financing.
China has cut back its lending in the past several years, after concluding that it was taking too many risks by lending to low-income countries. It has collected on previous loans and has issued fewer new loans.
It is not the only player to pull back. Japan and France as well as big commercial banks in Italy, Germany and Britain have also trimmed their exposure.
It took Zambia four years to work out a deal with its creditors after it first defaulted. Ghana, after defaulting on billions of dollars of debt last year, reached an agreement only this week with private creditors to restructure $13 billion worth of loans. And Ethiopia is struggling to work out a restructuring agreement.
The World Bank, the I.M.F. and the African Development Bank have all offered lifelines and increased their lending to Kenya to fill the gap when no one else would. But they, in turn, want the government to take steps, like raising taxes, to find a sturdier financial footing.
An agreement this month between Kenya and the I.M.F. to provide additional money warned of a “significant shortfall in tax collection” and a deteriorating fiscal outlook.
In May, Mr. Ruto said he was confident that Kenyans would eventually come around to supporting his actions. “I have been very candid that I cannot continue to borrow money to pay salaries,” he said in an interview. “And I have explained to the people of Kenya that we have a choice either to borrow money or to collect our own taxes.”
This month, Pope Francis convened a meeting at the Vatican and called for debt forgiveness and a rethinking of the world’s financial architecture to prevent debt crises such as the one shocking Kenya.
Unmanageable debt, he said, robs “millions of people of the possibility of a decent future.”
Declan Walsh and Ruth Maclean contributed reporting.
