Take bold steps to tame the rising debt burden

The National Treasury should take decisive steps to stem the rising debt burden. Advisories from experts indicate the debt portfolio is inching towards unbearable levels and this portends serious financial threats to the country. As at June, the debt portfolio stood at Sh7.7 trillion, which is more than double the country’s annual budget. The government now spends more than a third of revenues to service the loans, hence crowding out resources for recurrent and capital development.

This week, top government’s financial managers warned that the obtaining scenario was becoming unbearable. Central Bank of Kenya Governor Patrick Njoroge, Controller of Budget Margaret Nyakang’o and the Commission on Revenue Allocation chairperson asked Parliament to tame the Treasury's debt appetite. The call is timely, although not new. We have expressed this concern before but the government and Parliament have not paid heed.

Part of the problem is Parliament itself. It has failed to exercise its control on debt management. In quick succession it has plainly changed the Public Finance Management Act to raise the cap on government borrowing. At present, borrowing is capped at Sh9 trillion and already, there are proposals to raise it further.

Borrowing comes at a heavy cost. First, loan repayment is prioritised during budget execution and that means out of the revenues collected, the National Treasury has to retire pending debts before doing anything else. Second, in view of failing revenues, the government has been borrowing to pay off existing loans, effectively creating a debt treadmill. Third, loan funds are not properly used, with huge sums being pilfered or misspent.

In sum, the government has to act to forestall a crisis. It should institute strict austerity measures to curb excess expenditure and contain a pile-up of huge and unstainable loans.