National Treasury warned over failure to check growing national debt

A key advisory House team has asked the National Treasury to keep a close eye on the national debt to make sure that the country does not live beyond its means.

The Parliamentary Budget Office warned that if the Treasury loses control of the borrowing, then there was a likelihood of adverse effects on the economy.

With a national debt of Sh2.1 trillion, the equivalent of half the total declared wealth of the country, Kenya’s debt has not yet reached alarming levels. However, the Budget Office says the maths does not mean that the borrowing should go on unchecked.

In the current financial year, Sh325 billion will be spent on paying debt and on interest accrued.

The call for tight rules on borrowing come at a time when the National Treasury is working on a plan to allow counties to borrow money directly from donors, but with its guarantee and permission.

 CHEAP LOANS

The mandarins also told the Treasury that the planned review on the way national wealth is calculated is likely to lock Kenya out of the billions of cheap loans available to Government. “If the Gross Domestic Plan is rebased as planned, Kenya may also lose access to grants and highly concessional loans that are set aside for low income countries as it may appear to be closer to middle income status,” the experts said.

But the Budget Office is aware that the country will have to borrow to speed up the planned infrastructure projects. They also called for the taxman to be thorough when collecting revenues.

“Given that Kenya is a developing country, there is an inherent need for implementation of major infrastructure projects that promote growth, which results in huge capital demands that inevitably lead to borrowing to close the deficits,” they noted.

The experts also told the Treasury it has to be wary of loan guarantees to counties to make sure that the problem that has affected parastatals and local authorities does not move to the devolved units. Meanwhile, speaking on a late-night TV show on Monday, Cabinet Secretary for the National Treasury Henry Rotich said they are working on a framework that will ensure that counties borrow within a sustainable arrangement.