Heed warning on rising external debt

There appears to be no end to bad news on the economic front. After months of declining business precipitated by the political impasse over the presidential elections, the interest on arrears for the country’s long-term debt has risen sharply setting alarm bells ringing about the Treasury’s capacity to meet its repayment obligations.

According to data from the World Bank, interest on these arrears rose by 33 per cent from 2015 to 2016, a departure from previous years when interest repayments were kept under control. As a result, the interest on long term debt arrears has risen to Sh11.9 billion, meaning the country may be forced to renegotiate its debt repayment schedule with financiers to minimise risk of default.

The rise in external debt had been expected given that the Jubilee government has been borrowing twice as fast as previous administrations to fund capital-intensive infrastructure projects such as the SGR and roads.

What had not been expected was the contraction of the economy when all indications were that there would be robust growth.

There will obviously need to be some scaling down of big infrastructure projects. This will be painful as already, the government has indicated it will be dualising the Mombasa–Nairobi highway at a cost of Sh230 billion at about the same time it will be building an oil pipeline from Lokichar in Turkana County to the Lamu Port, which is some 865 kilometres away, at a cost of Sh210 billion. Clearly something has to give. Otherwise the country will find itself saddled with more debt than it can handle.