New debt office must stem irresponsible borrowing

When President Mwai Kibaki left office in 2013, every Kenyan owed our creditors Sh44,000. Fast forward; today, six years later, the debt per capita is Sh106,000. The debt has nearly tripled.

For Treasury Jubilee Party mandarins, borrowing would help close the jarring infrastructure gap and set the country on a path to growth.

The assumption was that as the GDP grew, so would the ability to absorb and pay off the debt. As things go, the country’s income per capita has gone up marginally; from Sh105,000 in 2013 to Sh169,000.

Many will understand the government’s urge to borrow heavily. President Uhuru Kenyatta’s wish is that by the end of his second term in 2022, every Kenyan will have access to critical healthcare services; not sleep on an empty stomach; have a well-paying job and a roof over their head.

SEE ALSO :Central Bank boss warns against additional borrowing

However, there have been growing concerns over the sustainability of the public debt – estimated to hit Sh6 trillion by 2020- given sagging productivity.

And the main grumble is not that the economy has been slow to expand but rather that a huge percentage of the funds is lost through corruption and wastage. A misspent or stolen loan is a heavy burden- it counts as double loss.

If the debt can be managed, the better. Not just its use, but when to get it and from whom. And this is where the National Debt Office comes in handy. Its broad roles include resource mobilization; developing a debt policy after assessing the risks and drawing up settlement schedule of accrued debt. During President Kibaki’s administration, the debt was mostly local with only one syndicated loan. The present government has taken two Eurobond loans, almost eight syndicated loans, Chinese budget loan and one from Afriexim bank.

The problem with this is that syndicated loans are expensive, short-term bank loans and Eurobond have massive principal repayments. When all these loans are crowded together, they simply cannot be paid organically. That makes taking up more debt inevitable; a sure ticket to debt trap.

Just to be sure, this newspaper has insisted that borrowing is healthy; debt is a good ingredient of development. What we have advocated is prudent spending of the borrowed funds. Clearly, a lot of things have gone wrong at the National Treasury and the World Bank cautioned about the lack of a debt management office.

SEE ALSO :Kenya’s burgeoning public debt alarming

If nothing else, the appointment of Harun Sirima will assuage donors and investors jittery about the macroeconomic policy and environment.

While Dr Sirima’s assumption of the office has been delayed, Kenya is readying to make Sh250 billion repayments on two syndicated loans, Eurobond. And meanwhile, the Sh324 billion from China’s Exim Bank that finance the Standard Gauge Railway is due in a few months.

It is unfortunate that Treasury has given the function a cold shoulder, engaging in power politics and missing concerns about rising debt.

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Public debtKenya's debt