Kenya may sink into more debt as committee grants borrowing request

The country may sink into more debt after the Government's proposal to increase its external borrowing limit by an additional Sh1.3 trillion was approved by a key House committee.

The National Assembly Finance, Planning and Trade committee wants the House to approve the request by the National Treasury Cabinet Secretary Henry Rotich to increase the country's debt ceiling from the current Sh1.2 trillion to Sh2.5 trillion.

Most of the money will go towards funding key infrastructure projects promised by the Jubilee government. Should the national Assembly adopt the report, Treasury shall have the green light to return to the House to ask members to approve the actual borrowing.

In its report, the committee chaired by Benjamin Lang'at (Ainamoi) challenged the Government to ensure there are no foreign exchange risks and that debt sustainability is maintained as it takes advantage of low rates of external borrowing.

It also wants the export sector to be taken care of by ensuring that infrastructural loans are well utilised.

"Considering the expenditure requirement for the medium term plan projects, the committee approved the request," the report partly reads.

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Some Sh5.7 trillion is required to fund the Sh327 billion standard gauge railway, Lamu Port and South Sudan Ethiopia Transport project, generation of 5,000 megawatts of electricity, Galana irrigation scheme and the crude oil pipeline to transport oil from Turkana to Lamu.

The committee noted that since projects that fall under the medium term plan II projects will also be financed by development partners and other bilateral donors, the current ceiling is likely to burst with the expected inflows. most of these projects are expected to be completed by 2017.

The other projects are the Northern corridor integration projects, the second container terminal and berth, transmission lines projects and the construction of 10,000km of road.

But, the Budget and Appropriations Committee recently voiced its concerns against raising the debt ceiling at a time the tourism industry is doing poorly with no assurances on exports and Gross Domestic Product growth.

The Parliamentary Budget Office led by Deputy Director Martin Masinde warned that Kenya risks a high external interest rate payment in the next five years. 

When he recently appeared before the Budget committee, Masinde said the proposed ceiling was too high, noting that Treasury was seeking the external funding after running out of options in the domestic borrowing market. 

The last adjustment was done in January last year, when the ceiling was pushed to Sh1.2 trillion from Sh800 billion. According to Rotich, once the ceiling is approved, the Government will venture into external borrowing leaving the domestic borrowing for the private sector.