By MARK KAPCHANGA

KENYA: Kenya is under intense pressure to bring down its fast rising debt levels.

Economists say the increasing public debt over the past years would have a harmful impact on long term growth despite the Government’s view that it is manageable.

As at June, external debt was at Sh843.6 billion as compared to last year’s Sh774.6 billion. On the other hand, the domestic debt hit Sh1.05 trillion three months ago, Sh192.2 billion more than that of June 2012.

With the revision of the external debt ceiling in January, the Government still has a window to borrow up to Sh1.2 trillion.

In this financial year, the Government expects to raise Sh106.7 billion through the issuance of Treasury bonds worth Sh74.7 billion. The remaining money will be realised through the sale of Treasury bills.

The amount, however, excludes Sh126.1 billion domestic debt rollovers. A rollover is a risk ordinarily faced by countries when their debt is about to mature and needs to be rolled over into new debt. This exposes a country to higher interest rate risks to refinance its debt in future.

Political will

According to the 2013/2014 MPs’ Budget Watch report, Kenya is expected to incur a total of Sh110.2 billion in domestic interest payment.

The grim picture of the economy is portrayed by the report, which shows that the level of domestic borrowing could go beyond the stated amount “owing to the fact that the budget is quite large relative to projected revenue collection”.

“If the projected revenue targets are not met then this could potentially force the Government to seek more domestic borrowing,” read the report.

It is not all gloom. A director at the Central Bank of Kenya says as long as the borrowed funds are used in financing the purchase of lasting value, in this case, like infrastructure, then there is nothing wrong. Such critical information, he says, should be communicated well to gain the political will of the people.

“When Kenya allows its debt to be refinanced to a term relatively lengthier than the value of what it purchased, it becomes a hindrance on the economy,” he said.

The report further argues that to guard against detrimental economic effects, such as the crowding out of the private investment, domestic borrowing should be well planned.