Kenya is facing a debt crisis, MPs warn

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Economic growth will continue to be in distress unless the growing public debt is managed through minimal borrowing and fiscal regulations.

The Kenya Institute for Public Policy Research and Analysis (Kippra) warned that the economy was already in the red and reeling under the pressure of a Sh5.3 trillion public debt, gradually reducing its ability to borrow more for development purposes.

Kippra's Benson Kiriga told the leadership of the National Assembly that although the agency concurred with Treasury that the country's public debt was sustainable, "it was very high in nominal terms".

“Kenya faces a moderate risk of external debt distress due to a breach of at least one of the three external debt indicators,” Mr Kiriga said.

Kippra's analysis came even as Treasury's Director for Debt Policy Daniel Ndolo played down the statistics, struggling to convince the MPs that the debt situation was sustainable.

MPs warned that the country risked finding itself in a position where it may not meet its loan obligations, especially in the face of failed revenue targets.

They challenged Treasury to tell Kenyans of its plan on how to get out of the debt crisis, even in the face of Government's appetite to borrow more.

Budget and Appropriation Committee chair Kimani Ichung’wa said the debt will be hard to manage if the fiscal deficit keeps rising yearly, having moved from Sh565 billion in 2017 to Sh578 billion in 2018/19.

National Assembly Majority Leader Aden Duale said Treasury must also listen to other experts to find a solution to the crisis.

"I think it is important to listen to experts. Let them bring their views to be factored in amendments to the Public Finance Management Act,” said Mr Duale.

Kippra said for a start, Treasury must ensure that debts are strictly towards development expenditure as stipulated in the Public Finance Management Act 2012.

Kiriga said counties had also contributed to the debt situation and should only be allowed to borrow if they could repay.

"Only counties that surpass fiscal prudence and debt sustainability thresholds should be allowed to borrow from the domestic market and international capital markets, but for development purposes only."

Kiriga added that the situation was not being helped by the high pending bills in counties, which stood at Sh108.4 billion in the 2017/2018 financial year compared to only Sh35.8b two financial years ago.