by Zachary Ochuodho
Kenya’s debt levels hit the 58 per cent of Gross Domestic Product (GDP) mark by the end of June this year. Currently, the country’s external debt stands at Sh2.7 trillion, while domestic debt stands at Sh2.5 trillion.
Analysts argue that dealing with rising public debt levels, deficits and realising the efficacy of fiscal policy in order to restore macroeconomic stability is not easy but requires radical measures.
Johnson Nderi, Head of Corporate Finance and Advisory at ABC Capital Ltd argues that with the rising debt levels, the government must reduce the public wage bill, identify alternative methods to fund the large infrastructure projects, eliminate low priority expenses, tackle public debt, reduce cost of projects and determine a sustainable level of debt.
Nderi says a sustained rise in deficits and debt raises questions on fiscal sustainability, the solvency of government and efficacy of fiscal policy in restoring macroeconomic stability.
However, Kiprono Kittony, national chairman of Kenya National Chambers of Commerce and Industry (KNCCI) said the government needs to improve the balance of payments.
Key among options KNCCI recommends include expanding the tax base, curbing corruption, improving the public transport network and service delivery and also supporting local industries to enhance competitiveness.
“An audit of government spending by heeding the directives of the Auditor General and making changes to spending based on independent reviews will also go a long way towards tackling debt,” said Kittony.
Introduction of VAT on petroleum products was an International Monetary Fund (IMF) suggestion as a method for Kenya to better deal with its public debt.
“Condition set by the IMF are a part of an agreement for a standby credit facility that would allow emergency borrowing in the event of economic shocks,” said Kittony.
He said the move in policy is expected to raise Sh71 billion adding that the change will increase tax revenue, contain the level of debt and improve the balance of payments of Kenya but definitely affect the country’s dream to achieve 15 percent growth in the manufacturing sector.
Kiprono said the 16 per cent value-added tax levy on petroleum products has a wide ramification ranging from the increased cost of living beside making Kenya goods uncompetitive.
However, Central Bank governor Patrick Njoroge (pictured) argues that Kenya does not need the Standby Credit Facility programme which provides financing to low-income countries facing short-term Balance of Payments needs.
Speaking during the post Monetary Policy Committee briefings, Njoroge said the foreign exchange market has remained stable supported by balanced inflows and outflows and a continued narrowing in the current account deficit.
Njoroge said the current account deficit had narrowed to 5.8 per cent in the 12 months to June 2018 from 6.3 per cent in March 2018.