Controller issues fresh warning on public debt, calls for restructuring

The Government should restructure the country’s debt, the office of the Controller of Budget has said.

In the nine-month expenditure review for the 2021-22 financial year, Controller of Budget Margaret Nyakang’o raised concerns over high public debt, which stood at Sh8.4 billion on March 31, 2022. 

The public debt stock is projected to be Sh8.6 trillion by the end of this month, against the current debt ceiling of Sh9 trillion, which MPs recently pushed to Sh10 trillion. 

Dr Nyakango said public debt grew by 14.6 per cent from the Sh7.34 billion as of March 31, 2021.

“There is a need to ensure borrowing is at a minimal cost and effective exchange rate control to reduce the high expenditure on payment of both principal and interest amount since most foreign debt is denominated in US dollars,” she said.

She argued that the exchange rate may be a contributing factor for the high growth in public debt, given that 49.9 per cent of it is denominated in foreign currency.

The Kenya Shilling to US Dollar exchange rate at the beginning of the financial year in July 2021 stood at Sh108.04 compared to Sh114.61 reported on March 31, 2022.

“The depreciation of the Kenya Shilling causes an increase in the stock of public debt in Kenya shilling terms and an increase in the debt cost (principal and interest),” Dr Nyakango added. 

“A growing foreign currency-denominated public debt in the background of a depreciating shilling necessitates an increase in the amount required for debt repayment provided for in the budget,” she said. 

In the period under review, Sh741 billion exchequer issues towards public debt, representing 63 percent of the net estimates of Sh1.17 trillion.

“Notably, exchequer issues towards public debt repayment have continuously crowded out exchequer issues towards recurrent expenditure, development expenditure, pensions and issues to county governments,” she argued.