Treasury secretary Henry Rotich. Kenya’s total public debt is Sh3.7 trillion. PHOTO | FILE
What you need to know:
Central Bank of Kenya data shows that government’s public borrowing has risen by Sh100bn in current fiscal year.
Kenya’s domestic debt has risen to Sh1.91 trillion as the government continues relying on the local market to finance a large budget deficit.
Latest public debt data published by the Central Bank of Kenya (CBK) shows the stock of government domestic debt has risen by Sh100 billion since the beginning of the current fiscal year, having stood at Sh1.81 trillion on July 1.
External debt stood at Sh1.8 trillion as at June 2016, meaning that Kenya’s total public debt is at least Sh3.7 trillion.
The growing stock of debt has raised concern over long-term sustainability, especially with tax revenue growing slowly and the Kenya Revenue Authority routinely failing to hit its collection target in recent years.
Analysts say that even though it is easier for the government to borrow locally, there remains the risk that it will crowd out the private sector from the debt market, posing a threat to economic growth.
“Local borrowing is advantageous as it is faster and simple to administrate, but the main issue is that government competes with the private sector for funds from banks, which leads to crowding out of private sector and slowdown in economic growth as the contribution by the private sector to economic growth reduces,” said Cytonn Investments in a debt sustainability note issued this week.
The growth in domestic debt in the current fiscal year has been driven by Treasury bonds, whose outstanding stock has grown by Sh110.3 billion to Sh1.25 trillion, and Treasury bills whose stock has grown by Sh32 billion to Sh620 billion.
The increments are, however, mitigated by the Treasury paying down fully the overdraft at CBK that stood at Sh44 billion on July 1.
The government has been forced to borrow to fill the deficit in the national budget, which has grown at an average of 15 per cent per year, standing at Sh2.2 trillion this year from Sh977 billion for the 2010/11 fiscal year.
At the same time, revenue collected by the KRA has increased by 14 per cent to Sh1.3 trillion in the last fiscal year from Sh670 billion in 2010/11.
The borrowing has led to Kenya’s debt to GDP ratio jumping to 50 per cent, thus raising the sustainability question. Kenya’s debt servicing will next year account for 40 per cent of the Sh1.5 trillion targeted tax revenue.
The government had set out to take up a significant portion of its borrowing this fiscal year from the now controversial external market, but it is yet to look outside the country for funds nearly halfway through the year.
Treasury CS Henry Rotich has in recent weeks said that the government will borrow externally when the time is right, indicating that the country is wary of paying steeper interest rates on a dollar-denominated loan.
“On foreign borrowing, though it gives the government another borrowing avenue apart from the domestic market, the challenge is that it opens up the country to trends in the global market, which may destabilise the economy in times of global crisis,” said Cytonn.
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