Rising public debt weighs on Kenya’s growth outlook

Kenya is facing a challenging economic outlook as the country grapples with a soaring public debt burden. Over the past seven years, the country's debt has skyrocketed from 1.6 trillion shillings to nearly 7 trillion shillings, with a significant portion of this increase attributed to COVID-19 funding. The Jubilee administration has embarked on various infrastructure projects in an effort to stimulate economic growth, but concerns linger about the effectiveness of these investments in driving economic activities. Ken Gichinga, Chief Economist at Mentoria Economics, has shed light on the implications of Kenya's escalating debt levels and the government's plans to navigate the mounting repayment obligations. Gichinga highlighted the global trend of governments resorting to substantial borrowing to finance infrastructure projects with the expectation of fostering a conducive business environment. While infrastructure development can indeed spur economic activities, questions remain regarding the efficacy and transparency of certain projects. He pointed to instances like the Standard Gauge Railway, which has faced scrutiny over its feasibility and job creation potential, underscoring the importance of clear cost-benefit analyses for such initiatives. Accountability has emerged as a critical issue in Kenya's debt management landscape. Despite the establishment of a public debt management office within the treasury, concerns persist about its effectiveness in overseeing the government's borrowing practices. The office was set up in response to mounting debt levels outpacing economic growth, yet Gichinga noted a lack of communication and tangible outcomes from the institution, raising doubts about its role in ensuring fiscal responsibility. The impending challenge for Kenya lies in sustaining a borrowing rate of 2.5 billion shillings per day under the Jubilee administration. Gichinga expressed apprehension about the potential imposition of a burdensome tax regime to meet repayment obligations, warning that increased taxes could deter investment and lead to business divestment. This scenario would not only weaken the business environment but also curtail funding for essential social sectors like education and healthcare, hampering overall development efforts. From a policy standpoint, the surge in public debt poses multifaceted complications for Kenya's economic stability and prosperity. The need to raise taxes to service debt obligations strains businesses, while the government's dominance in borrowing sidelines private sector credit access, impeding entrepreneurial growth and innovation. As banks channel more funds towards government bonds than private sector lending, the economy faces a looming imbalance that jeopardizes its long-term sustainability. In light of these challenges, Kenya confronts a pivotal juncture where strategic fiscal and monetary policies must be formulated to avert a full-blown economic crisis. Balancing debt repayment commitments with sustainable growth imperatives is paramount to safeguarding the country's economic future and fostering a conducive environment for businesses to thrive and contribute to national development.