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By JAMES ANYANZWA
KENYA: The era of high interest rates beckons, yet again as Treasury continually raids the local market to replenish its empty vaults.
Central Bank’s latest report shows the Government’s domestic debt shot by Sh125 billion to Sh1.2 trillion from Sh1.1 trillion in just two months.
This is already Sh19 billion over and above what Treasury had earmarked to borrow from the domestic market to fund the 2013/14 budget.
Treasury’s recent forays in the market have pushed the Government’s domestic debt at Sh1.2 trillion as at November up from Sh858.8 billion at the end of June last year.
The increased borrowing comes at a time Kenya Revenue Authority surpassed its first quarter collection target for the 2013/2014 financial year by Sh3.6 billion fuelled by reforms in the value Added Tax (VAT) law.
The taxman collected a total of Sh228.4 billion during the period from July to September 2013 against a target of Sh224.8 billion. The borrowing therefore lends credence to assertions that Treasury is committing taxpayers on debt and the resultant punitive interest charges even when huge sums of money lies idle.
And with the total public debt rising to Sh2.06 trillion as at the end of September 2013, each Kenyan is indebted to the tune of Sh51, 500.
Supplementary budget
It is, however, the increased domestic borrowing that is worrying the market with fears it could stir high interest rates, crowd out private investment and slow down the economy.
In what signals increased presence in the market, Cabinet on Friday approved plans to borrow more in the domestic market to finance this year’s supplementary budget.
The Cabinet approved expenditures amounting to Sh115.9 billion to cater for “salary-related expenditures, operations and maintenance and ongoing and new projects”.
And even as Treasury Czar Henry Rotich moved to allay any fears of straining the local credit market, Dr Thomas Kibua, a senior economist with the African Development and Economic Consultants excessive borrowing from the domestic market starves other sectors of credit by pushing up prices of the loans.
Last week, Controller of Budget Agnes Odhiambo warned against uncontrolled borrowing — especially pushed by a soaring wage bill.
“While we remain within the Government borrowing threshold, there is need to contain the soaring public debt,” said Odhiambo.
