Rising State borrowing piles pressure on private sector credit

Treasury CS John Mbadi. [File]

Kenya’s rising public debt is drawing attention to the government’s growing reliance on domestic borrowing and its potential impact on private-sector access to credit.

This has heightened concerns that increased State borrowing could intensify competition for financing.

Head of Programmes at the Institute for Social Accountability (TISA Kenya) Alexander Riithi said, according to Treasury figures, Kenya’s public debt currently stands at KSh13.2 trillion, of which about KSh7.3 trillion is domestic debt.

“Our current debt, according to Treasury figures, is now 13.2 trillion, of which a majority is domestic debt, about 7.3 trillion,” Riithi said in Nairobi yesterday at the Second Peer-to-Peer Engagement on the Media’s Role in the Oversight and Reporting of Complex and High-Risk Public Financing Instruments, organised by the Kenya Editors Guild (KEG) in partnership with the International Republican Institute (IRI).

Riithi said that increasing reliance on domestic borrowing comes as Kenya’s access to international debt markets has been shrinking, leaving the government more dependent on the local market to finance its budget and meet expenditure obligations.

“That forces us to increase our domestic borrowing, which has negative impacts. One of them is crowding out the private sector, because the government is competing with businesses for borrowing in the domestic market,” he said.

The concern arises as businesses continue to rely on banks and other financial institutions for working capital, equipment purchases, expansion and investment. Greater government demand for domestic financing can intensify competition for available funds and potentially put pressure on borrowing costs and access to credit.

The debt debate has also raised questions about how well Kenyans understand government borrowing and the use of public funds.

Kenya Editors Guild Chief Executive Linda Bach said journalists need greater capacity to understand and interrogate public debt, government borrowing and how borrowed funds are spent.

Bach said public debt should not be treated as an issue reserved for business journalists, arguing that borrowing decisions have implications across the economy, including education, healthcare, security and development.

“We are interrogating the borrowing by government, and we are also interrogating what the money that is borrowed is being spent on,” she said.

Bach said journalists should be involved in the conversation from the beginning rather than only reporting the size of the debt after borrowing has taken place.

“We want to be part of this conversation from the word go and to be reporting from a point of knowledge and with authority,” she said.

Bach said the Kenya Editors Guild’s role includes bringing journalists and newsmakers together to discuss matters of public interest and strengthening the capacity of journalists and editors to report authoritatively on complex economic issues.

For Riithi, part of the problem lies in how Kenya prepares its national budget, particularly when projected revenues fail to materialise.

He said the government can be left with expenditure commitments even when actual revenue collections fall below projections, creating financing gaps that have to be covered through additional borrowing.

“Whenever we have revenue shortfalls, that forces us to increase our debt appetite to cover the expenditures we have incurred,” he said.

Riithi said Kenya needs more credible forecasts for key macroeconomic indicators, particularly economic growth and revenue, to ensure budgets are based on realistic expectations.

“We should first of all start by having the right forecasts for all our macroeconomic indicators, especially our GDP number and our revenues, and have a credible budget,” he said.

He also called for greater control of government expenditure to reduce the need for additional borrowing.