Excessive borrowing is hurting economy



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The telltale signs that Kenya has plunged into a debt trap are there.

One, the amounts involved are progressively getting smaller; a sign of desperation amid lender concerns of creditworthiness.

Two, reasons for new loans are couched in generalities with the President’s ‘Big Four Agenda’ — universal health, affordable housing, food security and manufacturing — as their default justification.

The Sh75 billion the government is pursuing with the World Bank testifies to this.

The amount involved is measly compared to the causes — food security and affordable housing, which require trillions of shillings — for which it’s ostensibly being borrowed.

Dubbed the Inclusive Growth and Fiscal Management Development Policy Financing, the money is meant to cover a recurrent budget hole in formulating policies (foundational issues) on the Big Four, to which billions of shillings have already been committed.

That appears to fit with Kenya’s recent altruistic fiscal policy — commit inexistent funds, borrow, then plan later.

The government has brought this upon itself by continuing on an expansionary expenditure path despite declining return on investments from new spending.

In its appraisal last year of the budget options for Kenya over the medium term, the Parliamentary Budget Office warned that the government has to reduce its deficit to three per cent of income generated in the country in line with the convergence criteria for East African Community countries.

The deficit more than doubled by the end of 2017 to 8.9 per cent from 4.1 per cent of gross domestic product in 2011.

Managing the deficit is key to reducing the government’s expenditure needs, which are largely driven by capital investments in infrastructure.

The returns from these projects have been declining due to poor targeting, delays and cost escalations that undermine their impact on the economy, jobs and incomes.

To quote the budget office, “a road can be beautifully done but if it is not linked to an existing resource base, then it may yield little, if any, returns on investment”.

That could speak to the SGR, whose expenditure continues to outstrip the country’s capacity to generate revenue and has caused the borrowing binge.

Under the debt sustainability framework, Kenya’s borrowing, at 48.7 per cent, may be well below the 74 per cent crisis threshold.

But the speed at which it is growing — 20 per cent annually — points to an impending crisis. The debt service as a proportion of revenue has spilt above the 30 per cent benchmark in the past three years.

Parliament should now shed its partisan cloak and curb our economic managers’ appetite for borrowing. We owe future generations a balanced economy that works.


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