A rapid build-up of public debt in the past four years has put the Kenyan economy at the risk of turbulence, the World Bank warned on Wednesday, adding its voice to rising concerns over the possible impact of heavy borrowing on the country’s future.
World Bank Chief Economist for Africa, Albert Zeufack, and the bank’s Lead Economist, Punam Chuhan-Pole, said borrowing to finance infrastructure projects should be balanced with the dire risks of overborrowing.
“Any borrowing to support infrastructure projects should be done judiciously,” said Ms Chuhan-Pole when the bank presented the latest edition of Africa’s Pulse, a biannual analysis of the state of African economies.
Kenya has in the past four years borrowed billions of shillings to finance mega public infrastructure, including the ongoing construction of the standard gauge railway (SGR) line, power generation and road projects.
Recent forecasts indicate that the borrowings could soon take the debt load past 60 per cent of GDP.
Kenya’s total public debt stood at Sh3.827 trillion or 51.50 per cent of GDP in December 2016, according to latest data from the Treasury.
The World Bank’s warning comes at a time when mounting debt has dominated public discourse in Kenya and after several think tanks and experts expressed similar sentiments in recent months.
The International Monetary Fund (IMF) has urged Kenya to lower her budget deficit in order to keep the debt at manageable levels.
President Uhuru Kenyatta’s Jubilee government has, however, often remained defiant in the face of the warnings.
“Every year since the start of my administration, we have made adequate budgetary provisions to service the debt. I want to assure Kenyans that at no point has the country been at risk of default,” said Mr Kenyatta in mid-March.
The President repeated the defence of his government’s unprecedented accumulation of public debt during the State of the Nation address in March, saying the money will eventually spur economic growth.
“The money is not going towards payment of salaries or consumption but to projects that will spur economic growth and create employment,” he said.
To continue financing the ongoing and planned mega projects Kenya must reform its public investment mechanism to attract more private players, the World Bank said.
“The impact of public investment on economic growth can be improved if countries implement policies that make public investment more efficient,” said Ms Chuhan-Pole.
Mr Zeufack said that improving “institutions and procedures governing project appraisal, selection, and monitoring” could produce a sound public investment system for Kenya.
The latest Africa’s Pulse report shows economic growth in Sub-Saharan Africa is projected to grow at the rate of 2.6 per cent in 2017, following a deceleration in 2016.