Inside Politics

High debt burden stifling economic growth, says CBK boss

Thursday, September 16th, 2021 00:00 |
CBK Governor Patrick Njoroge. Photo/PD/FILE

Kenya’s high debt burden is stifling economic growth by reducing productivity, the Central bank of Kenya (CBK) Governor Patrick Njoroge has said.

High levels of public debt are known to negatively affect capital stock accumulation and economic growth through heightened long term interest rates, inflation, and a general constraint on fiscal policies leading to increased volatility and lower growth rates.

“Suddenly, because of the high debt burden, there is an increase in the rate at which the country is borrowing, which pushes up interest rates, stifles productivity and reduces our potential for growth,” he said.

Njoroge, who was speaking to the Senate’s Finance Committee on Kenya’s public debt status said: “We don’t want to wait until it is crushing us,” instead emphasising on among other mitigation fiscal consolidation. Fiscal consolidation describes a government’s policy intended to reduce deficits and accumulation of debt.

He said increased indebtedness is mainly as a result of the fiscal deficit as a result of spending huge amounts of money on infrastructural projects and recurrent expenditure especially in education and health,increased debt guarantee and worsening terms of new loans such as concessionality and increased commercial loans.

In recent years, Kenya has gone for the more expensive commercial loans as opposed to the less expensive multinational debt thereby being burdened in terms of interest and repayment.

Njoroge said to achieve fiscal consolidation, there is need to explore non-debt creating financing options for private investment.

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