IS IT FAIR TO LAY BLAME ON THE LENDING INSTITUTIONS (HIGH INTEREST RATES) AFTER AFRICAN COUNTRIES MISUSE BORROWED FUNDS DUE TO EXISTING RAMPANT CORRUPTION?

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It is wrong and immoral to seek to escape the consequences of one’s acts.” Mahatma Gandhi

“Accountability is the glue that bonds commitment to results.” ~ Will Craig

“At the end of the day, we are accountable to ourselves—our success is a result of what we do.” ~ Catherine Pulsifer

File Picture- President William Ruto

William Ruto’s concern about Africa getting a raw deal on borrowing interest rates after the same people are known for misappropriating borrowed funds- is not a justifiable statement. His response in France to seasoned bankers, among others, left doubts and many unanswered questions.

Kenya, and most African countries, are known for the misuse of borrowed funds due to rampant corruption that makes projects with donor funding or borrowed funds- yield unjustified exaggerated variations orders that are double the initial project costs.

There are instances, as we witnessed during the Uhuru administration, where the funds for two dams disappeared after Italian contractors and suppliers were paid for work not done.

The project was abandoned, and the country was subjected to paying a debt for an imaginary project. The same must, of course, yield high interest due to nonpayment or delayed payments. Even donations are also targeted like KEMSA when millions of Shillings got misappropriated during COVID season.

It’s obvious the significant risk factor placed on Africa is due to lack of transparency and accountability. If the same existed, and thus leading to corruption free projects, then we would be justified to complain to the lending institutions. Still, as things stand now, it’s not the case and to gain confidence of international lending institutions, African leaders must show commitment to proper accountability, especially on borrowed funds. It can be possible when action is taken on those found misappropriating project funds.

It is absurd to listen to our President complaining about the high-interest rates while knowing very well that the problem is purely on our non-commitment to transparency and accountability. Such interviews only expose ignorance, and it is advisable to have a foreign affairs Cabinet Secretary conversant with international relationships to face and answer questions asked during such panels.

We have an educated foreign Affairs Cabinet Secretary Mr. Mutua, and it would be advisable to leave foreign policy matters entirely to that Cabinet secretary who can be responsible for his utterances.

We can summarize the factors that determine the interest rates per IMF guidelines, and the same doesn’t target certain regions as President William Ruto is imagining.

The ratings are based on an evaluation of a number of macroeconomic, financial, and political variables, including a country’s economic growth rate, its current account balance relative to GDP, and various ratios—savings to investment, external debt to GDP, debt-service payments to GDP, and interest payments to GDP. In addition, a country’s vulnerability to external shocks is gauged by the degree to which it relies on a single export. A country’s willingness to service its financial obligations is measured both by financial variables such as arrears on international bank loans, debt rescheduling, access to bond markets, and cost of various forms of trade credits, and by political considerations, which typically include policies toward foreign creditors, the likely policies of opposition parties, the government’s capacity to implement measures needed to stabilize the economy and meet external payments, and the likelihood and potential effects of political instability.

While the criteria for assessing credit risk summarized above suggest a precise relationship between a country’s credit rating and the political, economic, and financial variables specific to that country, the judgment of the rating analysts plays an important role, both in evaluating economic and political variables (e.g., drawing conclusions about the degree of political stability) and in determining how much weight should be attached to different variables within each group of factors. Thus, a fair amount of subjective judgment goes into the final evaluation.

The above, as per IMF, is self-explanatory on how a Country’s credit ratings are determined, and leaders should familiarize themselves with basic macroeconomics or the same made a condition to become a President. If that is done, we can have a situation in the future where a sitting President will not embarrass the country during foreign trips when asked questions on matters of economy, as happened in France.

Kenya is not alone in this, but the same is common in all African countries, thus making the lending institution to place African countries in the category of “high risk” when it comes to borrowing. It’s purely based on the country’s capabilities in paying their debts effectively and has nothing to do with bias, as President William Ruto puts it.

Opinion By

Arch. Dr. Isaac Kinungi

For The Diaspora Times

President

Kenyan Parents In USA and Diaspora Connect Kenya.

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