Industrialists, MPs express worry over ballooning debt
Kenya’s captains of industry have decried the country’s rising public debt amid Coronavirus (Covid-19) economic shocks.
Phyllis Wakiaga, Kenya Association of Manufacturers (KAM) chief executive attributed the increasing debt stock to persistent fiscal deficits, which she feared would push up interest payments and constraining funds available for development expenditure.
“From where we sit, debt and investors have not really seen value for money in some cases, and return on investment on some of the projects has not grown fast enough to absorb the cost and that is why we really must come to how to prioritise the projects,” she said.
Wakiaga made the remarks during an Infotrak public debt webinar held on Monday on among other things, demystifying public debt in the country.
Kenya’s public debt has been rising at an alarming rate, and stood at Sh7.3 trillion as the end of last year.
The outbreak of Covid-19 has seen the government borrow more to support its response to the health pandemic.
Wakiaga said the high levels of fiscal and current account deficits was a threat to the stability of the country’s macroeconomics environment, which is dependent on stable exchange rate.
“They also have an impact on the business environment because it triggers higher taxation, higher borrowing costs and greater exchange rate as well as high debt to gross domestic product (GDP) levels risk crowding out private sector in the domestic market,” she said.
Wakiaga expressed fears that because of Covid-19 pandemic, lenders are now seeking higher interest rates on loans advanced, and sourcing for syndicated loans to retire maturing loans and other debt obligations will continue to expose the economy to re-financing risk.
Despite Kenya’s re-classification as a lower-middle income country by the International Monetary Fund (IMF), KAM boss advised the government to keep negotiating for concessional and semi-concessional loans.
To manage the debt situation, Wakiaga said the government needs fiscal consolidation and revise its tax policies.
“Today we have additional taxes, leading to less collection in a number of sectors, as well as duplication at national and county governments levels, leaving a number of fees and charges,” she said.
Several bills to control the government’s public borrowing are pending. They include the Public Debt and Borrowing Policy, Public Finance Management Act 2012 and the Public Management Bill 2020
Nambale Member of Parliament Bunyasi Sakwa, who has sponsored the Public Management Bill 2020 said Kenya has very little headroom with its debt service at two-thirds of gross domestic product (GDP).
In January, Kenya raised its debt ceiling to Sh9 trillion to accommodate growing expenditure needs amid underperforming tax collections.
Treasury said the public debt stood at Sh7.28 trillion by the end of December 2020, equivalent to 65.6 per cent of GDP in nominal terms.
Treasury had also projected the total public debt would rise to Sh7.66 trillion by the end of the current financial year in June and rise to Sh8.59 trillion in June 2022.
Opiyo Wandayi, the chairman of the parliamentary Public Accounts Committee said a draft Public Debt and Borrowing policy, which is key in managing risks and costs associated with public borrowing is lying at the Treasury, and should be brought before parliament for discussion.
Wandayi proposed the formation of a national task force on public debt by National Treasury, and engage an independent consultant to audit the national debt register to ascertain the country’s real debt levels.