Treasury must focus on reducing the country’s public debt burden

In recent weeks, the government has been at pains to explain how the Eurobond debt was used as the unrelenting opposition continued to pile pressure. Politicians on either side of the political divide have discussed this matter ad nauseum, supporting their party positions. I believe it is within the mandate of the MPs to examine the issue in a bipartisan manner through the respective committees after the Auditor General submits his report on the matter rather than politicise it.

Nonetheless, the increasing public debt is a matter of concern that should remain in the public discourse. According to the Treasury website, our total public debt stands at Sh3 trillion, up from Sh2 trillion in 2013, with external debt now representing over 50 per cent of the total. In simple terms, we have borrowed over Sh1 trillion to finance development in the past 24 months, in addition to our own revenues that have been appropriated towards development projects. Treasury records reveal that only 41 per cent of the external debt has been utilised for infrastructure, energy, and ICT. The rest was spent on other areas, including public administration, health, education, etc.

And therein lies the challenges with taking more debt. If debt is directed into productive gains, the result would be increase in our GDP, and its impact would be felt in the revenue inflows from the economy and improvement in current account deficit. Our revenues from KRA have stagnated in the past two years at around Sh1 trillion while our current account deficit continues to increase due to higher imports. Consequently, it is fair to state that in the short term, we have not reaped from the huge borrowings, and the rapid accumulation of debt will likely lead to challenges in servicing of the debts.

Sub-Saharan Africa attracted a massive $8 billion in Eurobond loans in 2014, up from $0.8 billion in the previous year as several countries opted for the hard currency loan in order to reduce domestic pressure on interest rates. But declining commodity prices and slump in oil revenues have raised the risks for the lenders, leading to downgrading of the credit rating of those countries last year, including Kenya. Even with the negative rating, Kenya can still attract these foreign loans but at a higher premium than was pertaining in 2014 Eurobond issue. While it is necessary to borrow for infrastructure development, the government must be cautious about its ability to service the loans.

Our ability to service debts depends on the existing debt burden and our projected deficits of the balance of payments and budget, as well as projected revenues and exogenous shocks to the economy. The Government will spend Sh400 billion servicing debt this year, and it is bound to rise significantly next year as more loans mature. Our budget deficit has also been on the rise and the recent expansion of ministerial departments indicates no urgency by the government to rationalise its public expenditure. The world economy too is generally expected to slow down this year and it will impact on ours adversely.

It therefore beats logic for anyone to suggest that Kenya’s debt is good and sustainable. We cannot compare our debt to GDP ratio with developed countries such as Japan or Greece and argue that we continue borrowing. Many socio-economic factors that inform our macro-economic environment and policy decisions differ from those of the First World.

In the recently adopted Sustainable Development Goals in the UN, it was agreed we place the citizens at the centre of such policy decisions in order to drive accountability. Lets talk about the need for more loans before taking them.