Kenya staring at real danger of debt crisis

Tuesday, October 15th, 2019 06:26 |
Money. Photo/File

Kenya could be setting itself up for a debt distress as it gobbles up more loans than the economy can repay. Signals of a looming debt pressure became more evident when Parliament last week voted to raise the borrowing ceiling to Sh9.1 trillion.

The MPs voted to amend the law that restricts public debt to 50 per cent of the Gross Domestic Product (GDP), giving the Treasury the green-light for an additional Sh3 trillion in loans. That means Treasury can now borrow an extra amount equivalent to Kenya’s current budget.

If the trend continues, public debt can easily hit 70 per cent of GDP, taking the country beyond the ceiling into a debt distress.

This even as questions are being asked about whether the past loans were well spent and the impact they had on the economy.

There is very little to write home about the various mega projects including the Big Four agenda, which have gobbled up the loans, since most have either stalled or stagnated.

Coupled with poor performance by the main economic drivers such as the SMEs, agriculture and the manufacturing sector, the downsising and lay offs by many companies are an indication of distressed economy.

Kenya Revenue Authority (KRA) has been collecting less and less taxes, and has even lowered tax projections, meaning there is little money being generated in the economy.

Many questions abound. While the need for money to drive the economy can not be gainsaid, can the huge appetite for loans be sustainable?

As the government evaluates debt tabled in Parliament on 44 loan agreements pending approval, it would make a lot of sense to consider the impact of these loans on the economy and future generations. Warnings by Central Bank of Kenya and the World Bank over possible debt distress could come to haunt, not only the future generations, but even the current one.

Expectations are that in the current situation, the government would have marshaled resources through austerity measures, cut spending on unnecessary projects and put in place mechanisms to jump start the economic.

It would also help if the government stepped up the fight against corruption which is estimated to gobble up close to 30 per cent of resources meant for economic growth.

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