The ministry said the investments being made in infrastructure as well as good quality institutions would ensure Kenya continues to invest well and is able to repay debts.
Treasury’s statement came as the Nairobi Securities Exchange (NSE) predicted the debt was likely to reach Sh2.9 trillion by the end of this year, an increase of more than Sh400 billion from last December level.
NSE, however, said there are chances the growth rate of the economy will outstrip the growth rate of debt.
Kenya’s public debt of Sh2.5 trillion is manageable and sustainable, the Treasury has said.
The debt at 46 per cent of the gross national product (GDP) is much smaller than that of many European economies and does not pose any risk to the economy, Treasury said in a statement posted on its website.
The ministry said the investments being made in infrastructure as well as good quality institutions would ensure Kenya continues to invest well and is able to repay debts.
Kenya has borrowed Sh327 billion from China to put up the standard gauge railway.
It has also factored Sh480 billion as the fiscal hole to be filled by borrowing both locally and externally in the 2015/16 fiscal year.
“The question is whether Kenya’s debt is sustainable… Heavy investment in projects will yield enough revenue to pay the debt in future. Good investments and microeconomic environment, backed by good quality institutions would ensure debt sustainability, and therefore low risk,” said the Treasury.
“In Kenya, the debt-to-GDP ratio stands at 46 per cent. In comparison, the European Monetary Union (EMU) States have a debt ratio of 96 per cent,” said the Treasury.
The Treasury’s statement came as the Nairobi Securities Exchange (NSE) predicted the debt was likely to reach Sh2.9 trillion by the end of this year, an increase of more than Sh400 billion from last December level.
The NSE noted the government continued to face rising fiscal deficits.
“The 2015 forecast [is] Sh2.9 trillion. Government continues to face fiscal deficits and will maintain its borrowing programme,” said the NSE in a presentation that accompanied release of its own financial results for 2014.
The NSE, however, said there are chances the growth rate of the economy will outstrip the growth rate of debt.
It projected a GDP growth rate of 5.6 per cent for this year, up from an estimated 5.2 per cent last year.
The International Monetary Fund has forecast an even higher economic expansion rate of 6.9 per cent.
The Sh480 billion borrowing projected by the Treasury is expected to be 7.4 per cent of GDP, which is still above the East African Community (EAC) recommended level of six per cent.
Kenya has been aiming at five per cent fiscal deficit for many years, but has been unable to achieve this. The Treasury is, however, cognisant of problems that can arise with external debt.
“Borrowing in foreign currency means increased vulnerability to external shocks. … The ratio of external to internal debt is an important factor to consider when issuing debt. Borrowing locally means that the cost of servicing the debt is not affected by external shocks since the debt is in local currency,” said the Treasury.
Currently, domestic debt stands at about Sh1.3 trillion, meaning the rest of the money (Sh1.2 trillion) is foreign borrowing, making the total public debt to stand at Sh2.5 trillion. The foreign debt rose last year due to the Sh250 billion ($2.75 billion) sovereign bond taken to finance infrastructure projects.
The Treasury, however, said that programmed domestic borrowing to June this year was in keeping with the plan to encourage private borrowing.
“Kenya’s fiscal deficit for the financial year 2014/2015 stood at Sh342.4 billion, 55 per cent external and the rest from other sources. This should be considered a relatively good mix that enables the Government to balance between crowding out funding for private investment, and exposure to external risks,” said the Treasury.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
