Public finance experts have urged Kenya Government to put in place mechanisms that will ensure prudent public debt management and cushion Kenyans from adverse effects that may result from excessive borrowing.
The experts were speaking at the KARA Bi-monthly Talk Series virtual forum organized in partnership with Hanns Seidel Foundation (HSF) on the theme: Is Kenya’s Public Debt Sustainable? Mr. Vincent Maosa, Banking & Finance Expert and Public Policy Analyst, stated that Kenya’s Debt-to-GDP ratio has surged from a low of 42 per cent in the 2012/13 fiscal year to a high of 69 per cent last year, breaching the 50 per cent prudential threshold recommended for developing countries. He noted that in the past couple of years, Kenya’s budget deficit has been on an upward trajectory thanks to the Government’s ambitious infrastructural projects. He said that the situation has been exacerbated by the devastating impact of Covid-19 as the raft of measures announced by the President to cushion people and businesses against the adverse effects of the pandemic shrunk revenues. To protect the economy against the insidious effects of excessive borrowing and guarantee sustained growth into the long term, Mr. Maosa urged the government to proactively lower the ballooning debt and run a balanced budget and ensuring that borrowed funds are invested prudently in the intended projects. He also urged Government to Institute measures to eradicate profligacy and high-level corruption, and enforce transparency and accountability in the expenditure of public funds and continue improving the ease of doing business.
Speaking at the same forum, Mr. Kwame Owino, the Chief Executive Officer of Institute of Economic Affairs (IEA) stated that public debt is a consequence of sustained deficits. He noted that Kenya’s economy was growing at 6% of GDP per year and was among the fastest growing economy in the world. However between 2013 to 2021, the deficits that the Government has run have been equivalent to about 7% of GDP. He noted that currently the Government is in a debt distress as it cannot pay its debts, bills, and other obligations by their due date, and this therefore doesn’t suggest a sustainability position on public debt. He noted that debt sustainability is measured in the following ways; Debt to GDP and Debt to Exports, which so far show that Kenyan debt is not sustainable. He stated that the only way public debt can become sustainable is to ensure that the interest payment on debt is growing at a lower rate than the GDP growth. He added that the primary responsibility for public debt sustainability in Kenya lies with Parliament, which in accordance to the Kenya’s Constitution (Article 209 and 211) has powers to approve taxes and spending of budget by the executive. He urged the government to enhance fiscal consolidation efforts to reduce deficits and debt accumulation, and cap spending.
The Government was represented at the forum by Mr. Daniel Ndolo, Debt Policy Director at the National Treasury and Planning Ministry. He stated that the government is striving to keep public expenditure within check and is also keen to enhance fiscal sustainability. He said that Kenya’s Public debt as at end of March 2021 stood at Kshs. 8.74 trillion. The debt register shows committed undisbursed loans of Kshs. 1.4 Trillion. He stated that debt sustainability is analyzed through framework developed jointly by the World Bank and IMF with thresholds based on Country Policy and Institutional Assessment (CPIA) Index. A country rated as a medium policy performer like Kenya and being a lower middle-income country is subject to public debt sustainability threshold of 55 % PV of Debt/GDP. He gave highlights on some of the options for Controlling Public Debt embraced by government which include;controlling fiscal deficits by keeping public expenditure under control which is done through oversight role of Parliament and independent Controller of budgets and Auditor general. The other option is to enhance transparency of debt management to retain the trust of lenders and the public. He stated that debt should be used to finance high impact programmes that benefit local economy.
You can find a link to the BTS forum here:
KARA: 18th May 2020
