FISCAL CONSOLIDATION

State to lean more towards concessional borrowing

Treasury scaling down on commercial loans

In Summary

•Kenya’s total public debt is nearing the Sh6 trillion mark currently at Sh5.902 trillion according to data by the Central Bank

Mwau says the government is scaling down commercial borrowing, to a point where it is manageable while focusing on revenue growth

National treasury PS Kamau Thugge with Fiscal and economic affairs director Geoffrey Mwau during Green Bond consultation forum in Nairobi on May 24,2018
National treasury PS Kamau Thugge with Fiscal and economic affairs director Geoffrey Mwau during Green Bond consultation forum in Nairobi on May 24,2018
Image: ENOS TECHE

The National Treasury expects to significantly scale down on commercial loans in the next three years as part of Kenya's debt management.

The director-general in-charge of budget, fiscal and economic affairs Geoffrey Mwau said although fiscal consolidation is ongoing, the impact would take time.

“Of course that could not happen in one year but over time if you look at our fiscal consolidation path, in the next three years we will be in a very comfortable level in terms of borrowing,” he said.

 

Kenya’s total public debt is currently at Sh5.902 trillion according to data by the Central Bank. Domestic debt is at Sh2.836 trillion while external debt stands at Sh3.066 trillion.

Speaking on the sidelines of the launch of the Regional Economic Outlook, Mwau said the government's focus going forward is concessional borrowing and increasing revenue growth.

“What we are doing is scaling down commercial borrowing, to a point where it is manageable, the key is to focus on revenue growth so that we do not have to depend on borrowing,” he said.

This may however prove an uphill task with the Kenya Revenue Authority missing its revenue targets year in, year out.

In the 2018/19 financial year alone, KRA missed its collection target by a whopping sh250 billion, raking in Sh1.44 trillion against a target of sh1.69 trillion.

This, even as Treasury revised the target twice to Sh1.51 trillion.

Early this month, lawmakers approved the increase in Kenya’s debt threshold to Sh9.1 trillion, a move aimed at ensuring Treasury is able to meet its annual budgetary needs in the next four years.

 

This means government plans to borrow Sh3.1 trillion between now and 2023.

World Bank has however warned against growing debt that could render the country insolvent.

While releasing Kenya’s Economic Update a fortnight ago, the global lender called for fiscal consolidation to reduce debt from the current 62 per cent of Gross Domestic Product (GDP) to 55 per cent in the medium-term. This is aimed at ensuring the country does not breach the 70 per cent maximum allowed threshold.

“We really care about the pace of accumulation towards the 70 per cent threshold. Previously it has been going down but it has turned around and it is now picking up again,” said Peter Wankuru, World Bank’s senior economist-macroeconomics, trade and investment.

Central Bank governor Patrick Njoroge also noted the need for fiscal and monetary policy consolidation to make both more accommodative and cushion the country from external shocks.

“In the case of monetary policy at this moment obviously its not that accommodative, so it means we may have to move to rebalance and become more accommodative on monetary and consolidate more on fiscal and then both will end up being more or less in the middle of the road,” he said.

He added that once fiscal policy was accommodative, it would very easily and quickly take care of problems such as the country’s ballooning debt.