Accord public debt priority for economy

Kenya’s public debt as at June 30 was Sh7.7 trillion, which is equivalent to 67.7 per cent of gross domestic product (GDP) and a 14.9 per cent increase from June last year’s Sh6.7 trillion or 62.2 per cent of GDP.

The ballooning debt has been brought about by the government’s significant borrowing to fund infrastructural projects and bridge the fiscal deficit that has averaged 7.4 per cent of GDP over the past 10 years. The borrowing is direct by government and also by guaranteeing state corporations. The debt mix, as at June, stood at 52:48 external to domestic debt ratio compared to 49:51 in June 2011.

High debt levels are detrimental to the country in the medium- and long term as we are likely to be exposed to various risks — such as higher cost of debt servicing, increased cost of further borrowing since lenders will price the new debt at higher rates, considering the heightened risk, which stifles the private sector and economic growth, narrowing of the fiscal space. That, as a result, has limited resources for infrastructure and capital expenditure, crowding out of the private sector by the government which largely leads to lower projected economic growth among other risks.

Given the high debt levels and the fiscal challenges that the country continues to face from the Covid-19 pandemic, the National Treasury should work on reducing the risk of debt distress and extreme unsustainability of the country’s indebtedness. The government ough to come up with the several measures, among the following, to deal with the debt problem.

Enhance revenue collection

First, the government should aim to enhance revenue collection as it forms a huge part in reducing the debt burden. This can be done by streamlining the revenue collection process and conducting frequent tax audits to help to seal loopholes that lead to loss of revenue.

Secondly, implement robust fiscal consolidation to help bridge the deficit gap. This can be achieved by reducing expenditure by introducing austerity measures and reducing amounts extended to recurrent expenditure.

Thirdly, the government should move towards reducing the share of commercial borrowing as compared to concessional borrowing so as to reduce amounts paid in debt service.

Fourthly, strengthen the capital markets structure to ease the pooling of funds by investors to undertake development projects.

Lastly, strengthen Parliament’s oversight role to ensure that it plays a sufficient and independent oversight role over the National Treasury to ensure that future debt uptake is well interrogated, is feasible and will bring economic benefit to the country.

The country is on a path towards debt distress if fundamental concerns like fiscal consolidation are not well addressed.

Mr Wamayuyi is an economic researcher. [email protected]