The debate about how much debt Kenya can prudently absorb is, once again, in the air after a Parliament granted the National Treasury’s wish to raise the borrowing ceiling to Sh9 trillion.
Coming a couple of years after the House accommodated a borrowing binge to raise the cap to Sh6 trillion, there was a palpable fear that the government was up to its bad ways again.
However, the Treasury defends the new limit as different for being absolute and not a fleeting target that is afforded by tying it to the country’s productive capacity.
One can easily charge the Treasury of deceit as the debt, at Sh5.9 trillion as of June, was already 56 per cent of gross domestic product (GDP) against a developing country benchmark of 40 per cent.
With the government intending to borrow another Sh630 billion this year, the ratio would have jumped to about 61 per cent of GDP.
Why, then, was the ceiling not raised to, say, Sh6.6 trillion to accommodate the immediate borrowing gap if the whole essence of review was to curb the government’s debt appetite?
Critics say the headroom was meant to extend comfort to partners who have committed to do mega projects such as the ‘Big Four’, the Mombasa-Nairobi highway, Lapsset transport corridor, Likoni bridge, another bridge at Nyali, as well as the successive extension of the standard gauge railway to western Kenya.
The World Bank has already warned that Kenya is trotting towards debt distress, a view fiercely contested by the government.
Whatsoever the case, the debates on Kenya’s debt need to move from the realm of numbers — which each party can interpret differently — to the context of realities confronting the economy.
First, were the government a person, it would not spend more than a third of its income on repaying loans.
Kenya has stretched that to the limit. Secondly, the country has taken in subsequent commercial loans at worse rates — a sign of rising anxiety among lenders over its creditworthiness.
Thirdly, key foreign exchange earners are in decline, meaning the ability to service mounting debt will be constrained in time as climate change takes a toll on agriculture, while the productivity of the manufacturing sector has been in the wane for years.
These factors mean the Treasury has to constantly look within and live within its means to finance its budget; a fiscal consolidation the absolute debt ceiling signals with a target of debt-to-GDP ratio of 44 per cent.
Increasing domestic production, balancing public sector spending and decidedly shifting to concessional debt are paramount for Kenya to avoid debt stress.
In the circumstances, Parliament should not raise the ceiling yet.