Kenya cautioned against accumulating too much

By Green Last updated Jun 2, 2016

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By Steve Umidha

The Numbers

As at Dec2015, Kenya’s total debt stood at Sh3.2 trillion compared to Sh 0.6 trillion in Dec 2000. The composition of the debt is both domestic, external

Government has pursued several means to fill its basket, currently accounting for 51.2 per cent of the total debt. Through syndicated facilities, Eurobond(s) and direct bilateral/concessional loans

The government has been warned against accumulating too much debt in foreign loans.

Analysts and economists have cautioned that over borrowing could plunge the country into a severe debt crisis in the absence of alternative measures.

Kenya currently lies with the safer bounds on debt levels. However, going forward, a report by Cytonn Investment has warned that there are risks associated with the changing funding patterns that could see the country’s debt levels rise, if government’s unrelenting borrowing spree is not controlled.

The investments firm is now urging the government to handle with care international markets borrowings as reliance on global markets could open up the country to global economic happenings which could undermine the economy.

“It is imperative that we be cautious on borrowings if we are to achieve the long term economic stability,” read the weekly report in part.

According to International Monetary Fund (IMF), the sustainable debt level for the emerging market is 50 per cent to GDP. Kenya currently stands at 52.0 per cent, indicating that we have surpassed the average target.

The high exposure could force the country to pay a premium if it is to borrow from foreign markets.

“It’s important to note that Kenya’s current debt levels have risen much faster and crossed the sustainable target within the fiscal year 2015/2016, from 41.8 per cent in 2014/2015,” the report says.

The growth has been driven majorly by the external borrowing window, where the government has progressively raised from the global markets.

The government has been borrowing heavily in recent years to fund its operations with low level of investments in infrastructure, expansive budget, devolved governance structure and shortfall in tax revenues cited as the main factors driving the rise in debt levels in the country.

Early this month, IMF said the country’s budget spend was at a “safe zone”, though the Treasury still needs to continue with the ongoing reforms to maintain market access.

Latest figures show that the government is still ahead of its borrowing schedule having borrowed Sh 316.0 billion from the domestic market in the current fiscal year against a pro-rated borrowing of Sh 200.9 billion.

The domestic borrowings is hoped will help plug the deficits in foreign borrowing of Sh 71.6 billion and tax collections of Sh23.5 billion.

On a net basis the treasury is also not under pressure to fund the budget as the already borrowed funds more than compensates the shortfall in KRA collections.

As at December 2015, the total expenditure was Sh 727.4 billion below the target of Sh997.0 billion with recurrent expenditure of Sh 416.5 bn, development of Sh 204.4 billion and other expenditure of Sh 106.5 billion.