EDITORIAL: Piling debt obligations major cause of worry

Treasury secretary Henry Rotich. FILE PHOTO | NMG
Treasury secretary Henry Rotich. FILE PHOTO | NMG 

At Sh4.4 trillion, Kenya’s public debt is evidently rising much faster than the taxman’s revenue bag is expanding. The debt load is well over half of the gross domestic product (GDP) now.

It will take either very high-yielding capital projects or painful fiscal tightening to keep the debt under control in the next five to ten years. The oil reserves discovered in Turkana’s Lokichar basin could as well offer a magic wand that eases the looming crunch.

Much of the current debt has accumulated under the Jubilee administration. Suffice to say the Standard Gauge Railway, which is billed as the country’s single-most-expensive project since Independence, was also built by the same administration.

There has been progress in the length of tarmac built, hospital equipment and public school access during the five-year Jubilee administration.

The big question that, however, hangs on the minds of those who care about the country’s financial status is how the national balance sheet will look like in the short to medium term.

It could as well be that these capital investments that the government has made will start yielding at a level that makes the repayment burden more bearable than is currently apparent.

This week, Treasury secretary Henry Rotich made three important announcements. Mr Rotich said the Treasury has cast its focus on the international markets with the intention of floating a fresh Eurobond.

He also revealed that the Treasury has negotiated a six-month delay for the payment of a Sh77.3 billion ($750 million) syndicated loan borrowed in 2015.

If the Eurobond does not come in time, Mr Rotich said that the Treasury will borrow yet another syndicated loan to retire the outstanding one, which matured late last month.

These announcements, plus other debt obligations that the government is piling regularly such as the Sh30 billion World Bank loan signed yesterday with Kenya Power #ticker:KPLC, is what raises questions as to the country’s ability to repay.

The deteriorating political climate does not help matters in any way. A disputed August 8 presidential poll, and an even more divisive October 26 repeat election, have left the country deeply divided.

The Treasury must take into account all these factors and tread with care in its balancing of the national accounts.