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Opinion & Analysis

Why Kenyan economy cannot afford unsustainable high borrowing rate

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

It is difficult to believe that in just five months the country has borrowed Sh430 billion. National Treasury secretary Henry Rotich in a report to Parliament stated that the Treasury had signed a total of 29 loans from February 1 to June 30, 2017. 

Looking at the history of the country in terms of finances, the budget has been growing with total expenditure at an average of 14.7 per cent to Sh2.2 trillion in the 2016/2017 financial year from Sh977 billion in the 2010/2011 fiscal year.

From where I stand, this budget is bound to keep rising if proper measures are not taken. The idea of borrowing to propel our economy is unsustainable.

In my mind, there are two questions worth exploring.  Why do we need to borrow? Why can’t we just work with what we have? Borrowing is good, but at this rate it might be dangerous since it is beyond the limit. 

The Treasury secretary, indicated that the funds are mainly for infrastructure projects such as roads, irrigation and water supply, energy and what not. 

However, with past scandals such as Eurobond and National Youth Service I reckon that most of the monies we borrow are not directed to the projects. 

The World Bank recently warned the country that our growing appetite for loans especially Chinese debt, risked hurting the economy. 

How can the country obtain humongous loans that are then squandered by officials? That means that we actually don’t need the loans since despite mismanagement the economy can still run. 

Why can’t we work with what we have until we bridge the debt gap then we can borrow again?

At the moment, the country is in debt and we are still borrowing. The country can use the simple strategy applied by small business.

I believe it’s one plan that can transform our economy. When a business starts all it needs is initial capital.

After initiating the business the owner conducts business at a cost, which will ensure that the capital is recouped plus the profit. If the initial capital was borrowed then the business will be able to pay its debtors and use the profit to buy new stock.

You see at this point there is zero debt and the business also continues as it saves the profit to increase the capacity. 

I really don’t think the country needs perpetual acquiring of loans. All we need is an initial capital that can help us prop investments hence sustainable economy.

Other measures include involving the private sector in development through public-private partnerships (PPPs) so that private funding reduces the need for public borrowing and also private funding enhances the self-sustainability of projects.

Moreover, government  needs to enhance task revenue collection growth, which can be achieved by developing and reinforcing efficient cash netting methods such as requiring the use of i-tax for remittance. 

Our policy makers should put in place enabling regulations for the development of innovative and competing alternative sources of funding to bring down the funding dominance by the banks.

Leah Nyasuna, Blogger, Nairobi, via email

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