How to tackle our national debt problem

Kenya’s debt sustainability is a matter of great concern because of the continued rise in the debt levels with institutions such as World Bank and the International Monetary Fund (IMF) stressing on the need for the country to focus on fiscal consolidation.

In December, the public debt was Sh9.1 trillion, a debt-to-GDP ratio of 63 percent, 13 percentage points above IMF’s recommended threshold of 50 percent for developing countries. Debt service-to-revenue ratio was 47.9 percent, 17.9 percentage points above the 30 percent threshold.

Despite the heightened debt sustainability concerns, the government’s efforts to boost revenue collection are commendable. But it can take actionable steps to reduce the debt overhang and mitigate the risk of debt distress.

First, high fiscal deficit is attributable to higher growth in expenditure relative to revenue. The government needs to implement robust fiscal consolidation through expenditure reduction by austerity measures and limit capital expenditure to projects with either high social impact or a high economic rate of return (ERR) and high economic benefits outweighing costs.

Secondly, strengthen the capital markets structure to ease the pooling of funds by investors for development projects. The capital market is underfunded and overshadowed with banking markets, having mobilised Sh4.4 trillion in deposits compared to collective investment schemes’ Sh0.2 trillion as at last September.

Thirdly, formulate favourable export and manufacturing policies to improve the current account, hence stabilise the exchange rate and stop our foreign-denominated debt from increasing as the shilling depreciates.

Fourth, fully implement private-public partnerships (PPPs) and joint ventures to attract more private sector involvement in funding development projects such as infrastructure.

Lastly, improve governance and accountability to help reduce wastage and corruption levels.

- Mr Wamayuyi is an economic researcher. [email protected].