CBK raises the red flag over Treasury’s high appetite for debt
CBK governor Patrick Njoroge: The Treasury has been overshooting its budgeted expenditures resulting in higher deficit. PHOTO | JEFF ANGOTE
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CBK has raised the red flag over the Treasury’s high expenditure which has seen the country’s borrowing surpass half the value of its output.
Dr Njoroge noted that the Treasury had been overshooting its budgeted expenditures resulting in higher deficits.
The Central Bank of Kenya (CBK) has raised the red flag over the Treasury’s high expenditure which has seen the country’s borrowing surpass half the value of its output.
Data from CBK shows the country’s debt stood at Sh2.8 trillion, or 51 per cent of gross domestic product (GDP), driven by domestic debt which stood at 26 per cent of the GDP.
“Concerns about fiscal pressures have been rising,” said CBK governor Patrick Njoroge in his presentation to Parliament last week.
Dr Njoroge noted that the Treasury had been overshooting its budgeted expenditures resulting in higher deficits.
CBK said last year’s budget deficit was nine per cent of GDP against the targeted 6.5 per cent. The widening gap between the projected and actual budget deficit has been prominent with the Jubilee Government.
CBK data shows that the Treasury had matched the targeted deficits from 2010 to 2013.
Extra spending
During the last fiscal year which ended in June, the government prepared two supplementary budgets opening the gates for extra spending.
This year the budget deficit is nine per cent, which means that if the Treasury fails to observe fiscal discipline it may see the actual deficit surpass the 10 per cent mark.
CBK pointed out that the country’s external debt payments were equivalent to two per cent of its GDP, up from less than one per cent in the 2012/2013 financial year.
Lenders such as the International Monetary Fund and rating agencies have asked the government to go slow on debt accumulation.
Rating agency Moody’s in its latest report said debt remains manageable for now, but that continued wide budget deficits would begin to seriously erode the government’s debt servicing capacity. Fitch, another international rating agency, has put Kenya’s credit rating — long-term foreign and local currency issuer default ratings — on a negative outlook from stable.
The Treasury’s appetite for debt is underlined by its utilisation of the overdraft facility at CBK which now stands at an all-time high of Sh41 billion.
The government has been accumulating debt to fund its ambitious infrastructure projects and meet the huge wage bill linked to the implementation of a new Constitution.
This has seen the debt burden rise from 41 per cent of GDP in 2013 when the Jubilee administration came into power to the current 51 per cent.
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