Kenya to grow when debt to GDP ratio is 100 per cent, says Joshua Oigara

KCB CEO and Chairman of the Kenya Bankers Association (KBA) Joshua Oigara has argued that for Kenya to grow, the debt to GDP ratio must be 100 per cent, from the current 44 per cent. Speaking to journalists, he said the arguments that our current debt is unsustainable fails to realize that all development countries have debts doubling their GDP.

As at the beginning of the current financial year, Kenya’s debt was at Sh3.2 trillion, with more than 60 per cent of it being domestic.

In the budget summary for the 2016/17 financial year submitted to Parliament by the National Treasury Cabinet Secretary Henry Rotich, Kenya is proposing that out of its Sh215 billion going to principal repayment, Sh172 billion or 79 per cent will be spent on domestic debt, with the remainder settling foreign debt.

Of the Sh251 billion marked for interest, Sh197 billion will go towards settling the domestic debt and the rest for foreign debt.

The high interest paid on loans was also called out by Institute of Economic Affairs (IEA) CEO Kwame Owino who said it should be an urgent concern more than the debt itself.

Kenya is proposing to spend Sh466 billion on public debt repayments in the next financial year starting, effectively committing a fifth of the budget to repay loans.

Economist  Jibran Qureishi from CFC Stanbic differed with Joshua Oigara’s view. He said that we need to ensure that we grow faster than real GDP.

We need to look for composition of debt in GDP. If we are spending on infrastructure, its fine. This is because this increase borrowing will dissipate in the short term, like three years hence debt won’t rise exponentially in the long term, he asserts.

Jibran added that it is not wise to increase our debt when we fail to grow above 6 per cent.

Treasury stated that Kenya’s economy is estimated to have expanded by 5.6 percent in 2015, up from 5.3 percent growth in 2014. Moreover it projects the economy will expand further to 6.0 percent in 2016 from 5.6 percent in 2015 and 6.5 percent in the medium.

In the long term, the present value of debt to GDP is expected to decline to about 36.1 percent by 2023, according to the Parliamentary Budget Office (PBO). The Government will continue to borrow more externally, on concessional terms and reduce its domestic borrowing. It however cautions that with increased appetite for financing heavy capital projects, there is need to maintain the net present value of public debt to GDP ratio at 45 percent.

Jibran asserted that it very difficult to compare ourselves with developed economies. He said advanced economies have low interest rates, unlike ourselves hence comparing is inaccurate.

He was not overly against borrowing, only affirming that we need to borrow and peg our repayments on things like increased exports not oil revenues.

According to budget estimates for the fiscal year 2016/17, Treasury says that Kenya’s growth will be supported by strong output in agriculture with a stable weather outlook and completion of key public projects in roads, rail and 4 energy generation. In addition, strong consumer demand and private sector investment as well as stable macroeconomic environment will help reinforce this growth.


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