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Opinion & Analysis

EDITORIAL: State’s huge appetite for debt is not sustainable

The National Treasury building in Nairobi. FILE PHOTO | NMG
The National Treasury building in Nairobi. FILE PHOTO | NMG 

Kenya’s public debt burden has reared its ugly head again. In the first month of 2016/17, when tax collection of Sh52.18 billion could hardly cover critical operations, the huge amount released for debt repayment stuck out like a sore thumb.

Data published by the Treasury shows that Sh16.59 billion was released from the Consolidated Fund to cover public debt repayment in July. It smacks of a debt trap that no cash was released for development in July.

Sadly, the strain experienced in the first month of 2017/18 is in sync with an all-too-familiar trend.

In the just concluded financial year, public debt grew to become the single-largest recurrent expenditure item. 

A total of Sh435.7 billion was released to settle debts in the previous financial year, Sh41 billion more than its total expenditure on development for the period.

Debt is not necessarily a bad thing. Used properly, it can safely finance government investments to spur economic growth. But the level of discretion and discipline required to make good use of loans is hardly found in public sector.

Experts, looking at existing gaps, have warned time and again that too much debt could ruin the economy. But public debt obligation is to government what tax is to firms and individuals.

It has to pay up whatever its circumstances. A quick look at the 2016/17 data shows interest charge claimed nearly half the debt repayment figure.

If the amount being spent on debt servicing is distressing, Kenyans should even be more concerned that the State’s borrow-and-spend race is not about to slow down. 

A number of flagship projects still awaiting rollout are hinged on debt financing. The government must unlearn its old wasteful ways, rid its ranks of corruption and start living within its means.

Otherwise, a number of borrowing anomalies point to dangers ahead. First, the Treasury has routinely accumulated mainly the long-term loans against an official guideline that calls for equitable sharing of debt burden between current and future generations.

Two, overreliance on debt has caused fiscal indiscipline. The government doesn’t appear bothered at all that its policy of never ending budget deficit is unsustainable.

Equally worrying is the subsequent wastage of the borrowed funds through inflated project cost of public projects.

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