Analysts warn Treasury over bid to increase debt ceiling

The Government’s plan to raise the ceiling of external borrowing by over Sh1 trillion has ruffled the feathers of many Kenyans.

Members of Parliament and the the Auditor General have also questioned the rationale of the new policy that is feared to plunge the country into a debt overhang and burden future generation.

But even as the National Treasury put on a brave face seeking a leeway to borrow up to Sh2.5 trillion from the external financiers to fund mega infrastructure projects concerns are rising over the capacity for the economy to service ballooning public debt.

Of concern is also the fact that the National Treasury through its annual public debt report (2012-2013) had warned that Kenya stands to be a disadvantaged borrower in its pursued for external financing, implying that the country risks accessing external loans at high interest rates.

Treasury had cautioned that creditors are already tightening lending terms for East Africa’s largest economy.

“Whereas the overall external debt is long term and concessional in nature, there has been hardening of borrowing terms in the recent past,” says report.

However, Cabinet Secretary Henry Rotich told the parliamentary committee on Finance, Planning and Trade that the country needed to take advantage of the low interest rates prevailing in Europe and America to grow the economy faster.

Kenyan taxpayers through their umbrella body National Taxpayers Association(NTA) said attempts by the State to increase the level of the country’s indebtedness is ill advised and tantamount to mortgaging the country.

Need of resources

“This a very dangerous trend being set by the Government,” said Martin Napisa, National Coordinator, NTA.

“What we are seeing is that we are borrowing beyond what we can sustain yet we have not seen investments in projects, which we can say will be able to generate resources to repay this debt. That is worrying.”

According to Mr Napisa, the move is likely to put the economy on a rocky path. “I think we are putting ourselves into a very difficult position. We need to put in place measures that will ensure we can only borrow what we can sustain. We are also burdening our future generation,” he said.

The Cabinet has already approved a proposal by the National Treasury to increase the external borrowing ceiling from Sh 1.2 trillion to Sh2.5 trillion with the exchequer arguing that the government is in dire need of resources to finance projects scheduled for completion by 2017.

The Auditor General has warned the move would take Kenyans 50 years to repay the loan. The current external debt stands at Sh1.045 trillion.

According to the report dated December 2013, Kenya’s overall public debt is expected to jump to Sh3 trillion by the end of the 2016/2017 financial year.