LEADER

Kenya should narrow budget deficit, reduce total borrowing

The country is expected to spend Sh1.1 trillion to repay loans of which Sh366.4 billion will be interests.

In Summary

• Kenya has recorded the lowest rates of expansion (less than six per cent per annum) in the past five years.

•The government must change its approach debt management.

Treasury Cs Henry Rotich.
Treasury Cs Henry Rotich.
Image: ENOS TECHE

Kenya’s annual debt will in 2019-20 cross Sh1 trillion for the first time in history, according to estimates presented to Parliament.

The country will spend Sh1.1 trillion on loans, of which Sh366.4 billion will be interest. Kenya’s rising public debt has been a point of discussion in most macroeconomic assessments, the World Bank and IMF, with global credit rating agencies raising concerns.

The debt ratio to GDP was estimated at 56.2 per cent in 2017 (from 44.0 per cent five years ago and 38.4 per cent ten years ago). Across the world, debt level for frontier economies is 50.0 per cent of GDP. Kenya is 6.2 per cent above that level.

This could result in a crisis. The debts arise from high government spending, low tax levels, uncontrolled borrowing, poor economic conditions and inappropriate fiscal policies.

Kenya has recorded the lowest rates of expansion (less than six per cent per annum) in the past five years — trailing its neighbours, even as its debt grew by double digits. Uganda, Tanzania and Rwanda have been growing at between five and eight per cent.

The objectives of growth under Vision 2030’s Second Medium Term can only be realised if Kenya improves governance, keeps inflation low and refines the business environment.

The government must change its approach to debt management as the current one has proved to be completely dysfunctional.