Treasury says Sh2.5trn public debt manageable

The Treasury building in Nairobi. PHOTO | FILE  NATION MEDIA GROUP

By GEOFFREY IRUNGU, girungu@ke.nationmedia.com

Posted  Tuesday, March 31  2015 at  18:07

In Summary

• The ministry said the investments being made in infrastructure as well as good quality institutions would ensure Kenya continues to invest well and is able to repay debts.
• Treasury’s statement came as the Nairobi Securities Exchange (NSE) predicted the debt was likely to reach Sh2.9 trillion by the end of this year, an increase of more than Sh400 billion from last December level.
• NSE, however, said there are chances the growth rate of the economy will outstrip the growth rate of debt.

Kenya’s public debt of Sh2.5 trillion is manageable and sustainable, the Treasury has said.

The debt at 46 per cent of the gross national product (GDP) is much smaller than that of many European economies and does not pose any risk to the economy, Treasury said in a statement posted on its website.

The ministry said the investments being made in infrastructure as well as good quality institutions would ensure Kenya continues to invest well and is able to repay debts.

Kenya has borrowed Sh327 billion from China to put up the standard gauge railway.

It has also factored Sh480 billion as the fiscal hole to be filled by borrowing both locally and externally in the 2015/16 fiscal year.

“The question is whether Kenya’s debt is sustainable… Heavy investment in projects will yield enough revenue to pay the debt in future. Good investments and microeconomic environment, backed by good quality institutions would ensure debt sustainability, and therefore low risk,” said the Treasury.

“In Kenya, the debt-to-GDP ratio stands at 46 per cent. In comparison, the European Monetary Union (EMU) States have a debt ratio of 96 per cent,” said the Treasury.

The Treasury’s statement came as the Nairobi Securities Exchange (NSE) predicted the debt was likely to reach Sh2.9 trillion by the end of this year, an increase of more than Sh400 billion from last December level.

The NSE noted the government continued to face rising fiscal deficits.

“The 2015 forecast [is] Sh2.9 trillion. Government continues to face fiscal deficits and will maintain its borrowing programme,” said the NSE in a presentation that accompanied release of its own financial results for 2014.

The NSE, however, said there are chances the growth rate of the economy will outstrip the growth rate of debt.

It projected a GDP growth rate of 5.6 per cent for this year, up from an estimated 5.2 per cent last year.

The International Monetary Fund has forecast an even higher economic expansion rate of 6.9 per cent.

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The Sh480 billion borrowing projected by the Treasury is expected to be 7.4 per cent of GDP, which is still above the East African Community (EAC) recommended level of six per cent.