Kenya: Constant Wamayuyi - How to Get Out of Debt Hole

20 November 2020

Over the recent years, Kenya's public debt has been increasing owing to the government's ambitious development agenda evident in the national budgets over the past decade.

The public debt was Sh6.3 trillion in March, with Parliament having raised the debt ceiling to Sh9 trillion from the initial 50 per cent of gross domestic product (GDP) in October last year.

In the current FY2020/21 budget, the government intends to borrow Sh569.4 billion more. Some could argue that the debt will be directed towards development projects that will, in turn, lead to faster economic growth, but this has not been the case. A significant amount of public spending has gone into development projects whose expected economic return might not finance the cost of borrowing.

This is how the government can solve the problem.

First, improve revenue collection mechanisms to maximise revenue, leading to a narrowing budget deficit and reduced borrowing. We can strengthen tax administration and expand the tax base.

Secondly, reduce government capital expenditure in the current period of distress and direct the funds to areas with a higher economic return, such as manufacturing. It can scale down on the funding of new projects and first complete the pending ones.

Value-added exports

Thirdly, build an export-driven economy by encouraging manufacturers to increase value-added exports, hence the value of our exports vis-à-vis imports. This will lead to an improved current account.

Fourth, restructure the debt mix to cut external borrowing and ensure a larger percentage is concessional to reduce debt servicing bills and diversify currency sources and risk. Encourage private sector involvement in development projects to ease the strain on government expenditure.

Fifth, agencies should enhance governance and accountability to reduce wastage and corruption.

Lastly, make the public investment procedure more efficient through better administration of borrowed funds and improvement of projects.

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