• The Legislature warned that the public debt is eating into the fiscal space, hence, affecting development
• Economist says the situation is not good signal for the economy
The Legislature has been warned that Kenya's Sh5.3 trillion public debt is now eating into the fiscal space and hence, affecting development.
“Kenya faces a moderate risk of external debt distress due to a breach of at least one of the three external debt indicators,” Benson Kiriga of the Kenya Institute for Public Policy Research and Analysis (Kippra) told MPs attending a National Assembly Leadership retreat in Mombasa on Saturday.
The situation is not a good signal for the economy, Kiriga said.
The alert came a day after President Uhuru Kenyatta clinched a Sh67 billion Chinese deal for the construction of the Konza Data Centre and Smart Cities Project and the JKIA to James Gichuru expressway.
The public debt is 60 per cent to the GDP ratio as at January 2019. Some Sh2.7 trillion was borrowed externally and Sh2.6 trillion from domestic sources.
‘is in the red’ in the wake of heavy borrowing by President Uhuru Kenyatta’s administration which has seen the country reel under pressure to repay its Sh5.3 trillion public debt.
The debt is more than twice higher than the Sh2.5 trillion borrowing cap in the Public Finance Management Regulations, 2014.
The debt drivers are an expanded fiscal policy, slow economic growth, deficits in the state current account balances, low revenue collection in counties, bad governance, and negative savings investment, Kiriga said.
He said the ideal situation is when the debt is maintained at a 50:50, backed by a strong revenue collection strategy.
Treasury Cabinet Secretary Henry Rotich will tomorrow present to Parliament final budget estimates for the 2019/20 financial year after a review of the 2019 Budget Policy Statement by various House committees.
The focus will likely be how the Sh2.7 trillion budget will tackle the debt question, the current drought, fluctuating fuel prices, and inflation.
These expenditures comprise among others, recurrent expenditure of Sh1.6573 trillion (14.6 per cent of GDP) and development of Sh670.9 billion (5.9 per cent of GDP).
China leads in the list of external debt creditors by 22 per cent followed by World Bank at 20 per cent; ISB (19 per cent), commercial banks (14 per cent), African Development Bank (8 per cent). The rest is owed to Japan.
MPs have cautioned that the country risks being in a position where it may not meet its loan obligations, especially in the face of failed revenue targets.
Leader of Majority Aden Duale, leader of Minority John Mbadi, and lawmakers Makau Mulu (Kitui Central), Rachel Nyamai (Kitui South), chief whip Ben Washiali (Mumias East) and deputy chief whip Chris Wamalwa (Kiminini) challenged the National Treasury to tell Kenyans its plan to get out of the debt crisis.
The concerns are that some of the monies are possibly not being spent on development projects or if so, they are expended on non-viable ventures.
Budget committee chairman Kimani Ichung’wa said the debt will be hard to manage if the fiscal deficit keeps rising annually, having moved from Sh565 billion in 2017 to Sh578 billion in the current financial year.
He said more trouble came in the face of state agencies not adhering to the set spending framework and austerity measures as ordered by the authorities.
The MP cited the use of fuel guzzlers by Cabinet Secretaries, some with chase cars of engine capacity exceeding the 2,000cc set by President Uhuru Kenyatta when he was Finance minister.
“We must look at this debt and revenue collection issue seriously having failed to look at the debt management strategy. What happens if we don’t perform in revenue collection in 2019?” he asked.
Duale said the country should listen to experts on what the solution is. “I think it is important to listen to experts. Let them bring their views to be factored in amendments to the Public Finance Management Act,” the Garissa Township MP said.
Director of debt policy at the Treasury Daniel Ndolo, who represented Rotich, admitted that poor governance is partly to blame for the unending revenue shortfalls.
Ndolo, however, downplayed the figures saying the debt is sustainable as it has not exceeded the 70 per cent sustainability level.
He said the matter must be looked into as the country could be spending more of its foreign exchange earnings on debt repayment.
Mbadi asked him how the Treasury will follow to ensure that borrowed funds are spent strictly on development.
He called for a stronger Debt Policy, Strategy and Risk Management (Middle Office) to give it powers to tame the burgeoning debt.
Wamalwa said state officers must maintain high integrity in their execution of duties to minimise corruption cases.
Nyamai doubted whether the country would navigate itself out of the debt crisis.
Pokot South’s David Pkosing held that funds from levies charged on Kenyans be restricted for use in the sectors from which they are raised.
He cited the Road Maintenance Levy, saying the use of Sh60 billion should be restricted to road construction projects.
Also of concern to the legislators is the pending bills amid disclosure that counties owe suppliers more than Sh108 billion.
The nonpayment has seen some SMEs blacklisted by Credit Reference Bureau for failing to meet their loan obligations.