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MPs seek new funding model to ease debt burden on Kenya
What you need to know:
- They added; “However, Kenya can use a mix of alternative forms of financing such as public-private partnerships, annuity concessions and project bonds as alternative to traditional debts.”
- ‘‘Thailand and Namibia had interest rate spreads of around 1.4, 4.5, 4.8 and 6 per cent respectively. It is, therefore, evident that the private sector in other African countries is enjoying an advantage in terms of cost of credit and returns on savings which are both contributors to economic performance,” the report says.
- The country’s debt portfolio has been increasing reaching 51.1 per cent of the Gross Domestic Product to Sh2.1 trillion in March. Out of this, 42 per cent is external debt and 57.9 per cent is domestic debt.
Members of Parliament want the government to explore new funding models for development projects to avoid overburdening the country with debts.
In a report released this week, the Parliamentary Budget Office said the government ought to find innovative ways of raising capital to finance the much-needed infrastructure upgrade and other development projects, avoiding putting the country in huge debts.
“Given that Kenya is a developing country, there is an inherent need for implementation of major infrastructure projects that promote growth and service delivery of services, which result in huge capital demands that inevitably lead to borrowing to close the deficits,” the report says.
They added; “However, Kenya can use a mix of alternative forms of financing such as public-private partnerships, annuity concessions and project bonds as alternative to traditional debts.”
The country’s debt portfolio has been increasing reaching 51.1 per cent of the Gross Domestic Product to Sh2.1 trillion in March. Out of this, 42 per cent is external debt and 57.9 per cent is domestic debt.
DOMESTIC BORROWING
The MPs have also requested that the government reduces its domestic borrowing to trigger a drop in interest rates.
“It is evident that the interest rate margins for Kenya are relatively higher than other African countries. Whereas the interest margins in Kenya were around 8 and 9 per cent between 2009 and 2012 Mauritius, South Africa,
‘‘Thailand and Namibia had interest rate spreads of around 1.4, 4.5, 4.8 and 6 per cent respectively. It is, therefore, evident that the private sector in other African countries is enjoying an advantage in terms of cost of credit and returns on savings which are both contributors to economic performance,” the report says.
Government investment is projected to grow by 16.4 per cent, 18.6 per cent and 29.5 per cent in 2015, 2016 and 2017 respectively due to the ongoing and planned investment in large infrastructure projects in the medium term.
The projects include the standard gauge railway, the Lamu Port Southern Sudan Ethiopia Transport Corridor, investment in geothermal energy generation at Olkaria and Menengai, Mombasa-Nairobi power transmission line, expansion of Jomo Kenyatta International Airport and major national roads among others.
The greatest challenge, the report says, is in low absorption of development funds from donors.
In July, the absorption rate of the 2013/14 budget stood at 55 per cent and 48 per cent for loan appropriations in aid and loan revenue respectively. The rate is slightly above that of 2012/13 during which 50.65 per cent of the total donor funds was absorbed.
