Bond to pay off debts is costly, unnecessary

The parliamentary Budget Committee wants government to borrow Sh150 billion to pay off all its pending bills (see P12).

This is not a good idea even though the government's failure to pay its debts on time is a huge burden for the economy.

All governments carry debt and Kenya is no exception. Our problem is that the government debt to GDP ratio is now around 72 percent, well above the recommended 60 percent.

The challenge for Kenya is to manage its debt efficiently. Last year President Kenyatta ordered government and counties to pay off all debts within three months. That political promise was impossible to fulfil.

Instead, government should plan to pay off its debts steadily within a definite period. If private companies knew for certain that they would be paid in six months, that is almost as good as being paid today.

Borrowing another Sh150 billion to put domestic debt back to zero is unnecessary. And such a government bond would increase Kenya's total public debt by around 20 percent.

Kenya will still float new bonds next year but it should not float a bond to immediately clear all outstanding domestic debts.

Quote of the day: "Emancipate yourselves from mental slavery, none but ourselves can free our minds!"

Marcus Garvey
The Jamaican activist leader died on June 11, 1940