State domestic debt grows by Sh100bn in one month

The government’s domestic debt went up by more than Sh100 billion to hit Sh1.1 trillion in the last one and a half months even as pressure for higher salaries by public servants continue to put a tight squeeze on the Treasury coffers.

The rise has surpassed the local debt limit for this financial year 2012/13 by more than Sh75 billion, according to Central Bank data.

The government had set the domestic debt limit at Sh138 billion but pressure to meet the rising financial obligations, especially higher pay for public servants and implementation of the devolved government, has seen domestic debt rise to Sh213.3 billion this financial year.

A total of Sh185.7 billion, representing 87 per cent, was raised through Treasury bills and bonds.

“As things are right now, the government has realised it cannot meet its expenditure with the available funds, so it has to borrow more. But if it borrows without controls, this could be unsustainable,” said Kenyatta University economic lecturer Dr Joseph Muchai in an interview.

Despite growing demands for higher wages and funds to run the counties, the government has reduced its appetite for credit less than two months to the reading of the 2013/14 budget.

Economic analysts say the mounting domestic debt is a burden to future generations.

“In the short term, increased borrowing is a good thing even if it is used for recurrent expenditure like payment of salaries as people are now able to spend. But in the long term, if the level of borrowing is not controlled, the future generations will heavily pay for this,” Dr Muchai said.