Growing external debt to cost taxpayers more, says report

The Parliamentary Budget Office (PBO) has warned that taxpayers will be forced to bear an extra burden in servicing the country’s external debt in the coming months.

The legislators noted that the continued depreciation of the shilling, which is currently trading at a low of Sh90 against the US dollar, raises the country’s debt burden.

Through their latest monthly bulletin, the MPs, most of who are economic experts and fiscal analysts, said the country would pay a premium price for the depreciation of the shilling against the greenback.
“The currency composition of the external debt shows that the US dollar forms the largest share of the external debt portfolio followed by the Euro. This is a worrisome trend because it means that in the coming months, the country would pay higher premium due to the depreciation of the shilling,” said PBO.

According to the report dated October 2014, the country is slowly approaching the parliamentary approved statutory external debt ceiling of Sh1.2 trillion. The MPs, however, cautioned that an attempt by the Executive to raise the external debt ceiling to Sh2.5 trillion should take into account the total estimated amount required for external debt stock for the 2014/2015 fiscal year and that the external borrowing must be in line with the provisions of the Constitution.

According to the report, Treasury should also carry out a new debt sustainability analysis in view of the rebased GDP figures. “The National Treasury should also address the low absorption capacity of development expenditure. This would enable Kenyans to enjoy the benefits of the funded projects,” indicated the report.

Last week MPs who sit in the House Committee on Finance, Planning and Trade, including the Parliamentary Budget Office said the push to raise the borrowing limit was “not clear”.
The lawmakers said the proposal would only help sink the country further into debt, without a clear policy on how the current debt will be managed, what projects the money raised will be used for, and how the country will pay back the money. The technocrats said the MPs had a duty to question National Treasury Cabinet Secretary Henry Rotich on the specific projects he intends to roll out, how they will be distributed in the country, and there must be a clear strategy on how the monies would be repaid.

According to the report, the overall external debt was slightly reduced from Sh1.09 trillion in the month of August to Sh1.08 trillion by the end of September 2014 owing to the repayment made to the syndicated loan amounting to $600 million.