CBK cautions government over narrowing window to borrow

Central Bank of Kenya Governor Patrick Njoroge during a media briefing at his office in Nairobi.[Elvis Ogina, Standard]

Government should consider other options of funding projects apart from debt, Central Bank of Kenya (CBK) Governor Patrick Njoroge has said.

Addressing the press at CBK headquarters in Nairobi yesterday, Dr Njoroge said even though he sees the current public debt level as sustainable, it could become difficult in future to depend on borrowing to finance huge infrastructural projects.

“The issue is that the room for borrowing to finance such projects is obviously narrowing. We need to have alternative ways of financing these projects,” he said.

Kenya’s debt stands at Sh4.5 trillion, about 50 per cent of the gross domestic product, even as the National Treasury recently announced fiscal consolidation measures.

Njoroge, a former advisor to the IMF deputy managing director, said the Government should identify and strengthen new financing models such as public-private partnerships (PPPs).

Citing the proposed dualling of the 473km Nairobi-Mombasa highway, he said it was time to shift from “one way of doing things”, and seek new models of financing.

“The beauty of financing is that you have an entire range. You can span the set of all the possibilities and all you need is a few finance engineers,” he said.

With most PPPs preferring projects that are clear in terms of costs and with very few risks, the governor said some projects would be suitable for other modified models such as build, lease, operate and transfer.

He added that it was critical for all financing models to be carefully crafted to ensure they suit the appropriate project, also stressing on the need to audit all initiatives to ensure they have public benefit.

“It is important that those projects are well assessed in terms of how expensive they are, and their benefits to the economy to ensure there is proper project appraisal,” added Njoroge.

Put brakes

Meanwhile, the governor said the interest rate cap has put brakes on the economy and that the Monetary Policy Committee (MPC) is monitoring its impact on the transmission of monetary policy.

The MPC, he said, sees a risk of negative outcome in making decisions on altering the benchmark rate.

“We are unsure if, in order to accommodate policy, we should lower or raise the rate,” said Njoroge.