Pre-budget report says Kenya hanging at edge of debt trap

Pre-budget report says Kenya hanging at edge of debt trap

May 30, 2019 0 By mykenyancareers
Debt - Pre-budget report says Kenya hanging at edge of debt trap
Ernst & Young Partner Anthony Muthusi says Kenya’s debt to GDP ratio is currently at 55 per cent which is above the Africa average/Courtesy

NAIROBI, Kenya, May 30- Kenya is hanging at the edge of a debt trap since a huge chunk of its loans are short term loans with no structure and this  will affect the country’s growth rate in the coming years.

Speaking during the pre-budget outlook report by Ernst and Young Professionals, one of the partners Anthony Muthusi said the country’s debt to GDP ratio is already above 50 percent which is above the recommended standard of all African countries.

“The challenge we face with our date is the structure since a significant amount of it is in dollars which means we are exposed to delivering in the currency of the loan, and we are 55 percent debt to GDP ratio,” he said.

Borrowing has been one of the government’s way of raising revenue in which now it is urged to consider slaying such discrepancies such as corruption.

Ernst and Young Professionals Tax Partner Francis Kamau said the government should understand the purpose of borrowing and the deadline to pay to dodge more borrowing that is likely to result in high taxation.

“By the time you are getting a loan you have to understand the purpose and channels you will use to clear it and we need to look at the interest rate which we can get internally,” he mentioned.

Recently, the World Bank approved a Sh75.9 billion loan to Kenya which will majorly finance the government’s big four agenda.

The report by World Bank revealed that it is for the first-time putting cash straight into the treasury to be used at the discretion of the government.

“Measures supported by this are expected to benefit ordinary Kenyans through better targeting of agricultural subsidies to reach low-income farmers increasing the availability of affordable housing,” reads the statement.

Early this week the Central Bank Governor Patrick Njoroge recommended that Kenya should re-organize its debt structure since the country’s headroom for new borrowing has shrunk as a result of tapping into the Eurobond market early this month.

President Kenyatta took office when the debt to GDP ratio was at 42 percent and the script has now changed.

The government has since defended the increased borrowing alluding to demand in investing in infrastructures such as roads and railways.

Critics have however questioned the government’s thirst of debt saying this is likely to lead to heavy taxation of Kenyans in order to pay debts when the demand arises.