Top Treasury official defends Kenya’s big appetite for loans

The National Treasury has defended the government’s high borrowing appetite as the public debt rose to Sh3.6 trillion in June.

The Treasury said the debt is manageable, with a headroom to accumulate more without compromising economic growth.

“We had communicated this in our borrowing strategy, we have discussed in Parliament, done public participation...that we are going to borrow commercially Sh155 billion, we are just following what we told Kenyans we were going to do,” said economic secretary Geoffrey Mwau on NTV’s AMLIVE show.

The government has to borrow to plug the Sh691.5 billion deficit in this year’s Sh2.2 trillion budget.

Dr Mwau said the borrowing was an indication of the country’s good image, with access to sovereign bond showing that Kenya had matured economically.

But management consultant Mike Eldon said the challenge was how to manage the money borrowed both internally and externally, as Metropol Corporation chief economist Nderitu Muriithi agreed that it was a positive thing that Kenya could go to the international market and raise money.

“We need to prioritise projects that can have a positive effect on the economy,” said Mr Muriithi.

In October last year, the World Bank warned that while Kenya’s public debt remains sustainable, the margin for further debt accumulation was rapidly narrowing, exposing the country to potential difficult times.

The country has in the past four years borrowed billions of shillings to finance infrastructural projects and some forecasts indicate that the borrowing could soon take the debt load past 60 per cent of gross domestic product (GDP).

READ: World Bank says Kenya's debt racing to danger zone

The panel suggested the government should use the resources for an economic stimulus package for Small and Medium-sized Enterprises (SMEs) to have a bigger impact.

Currently the SME sector is responsible for 3.2 million quality jobs (paying an average of Sh20,000 per month), compared to the government’s 700,000 and private sector’s 1.5 million jobs.

Mr Muriithi, however, said the government needs to take a sizeable amount of the money borrowed to the SME sector.

“The reason people are complaining is because it is all fine to borrow, it is all fine to do the big infrastructure projects, but there is actually no support for the small businesses. What government is doing is winding up all government entities that used to support small businesses,” said Mr Muriithi.

The Kenya Association of Manufacturers chief executive Phyllis Wakiaga noted that one of the big challenges facing SMEs was delayed payments and access to credit.

“This is a big challenge in terms of their sustainability, the cost of credit to them is high, and the government should come in a big way and invest in these SMEs,” said Ms Wakiaga.