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Experts raise concern over Kenya's raising debt levels

Xinhua, May 12, 2016 Adjust font size:

Experts on Wednesday expressed concern over Kenya's rising debt levels which could affect macro-economic stability.

Kwame Owino, CEO with Institute of Economic Affairs (IEA), a Kenyan economic think tank, told a business forum in Nairobi that Kenya plans to spend 4.65 billion U.S. dollars in repaying debt in the next financial year against projected revenue of 15 billion dollars.

"This means that debt redemption will be the single largest government expenditure. So close to one third of the government revenue will be devoted to repaying debt and this will significantly reduce the flexibility of government spending," Owino said.

"So I don't think it is prudent for Kenya to take any more debt except under extraordinary circumstances," he said.

Owino added it is not possible to reduce government annual borrowings to zero and so before any borrowing is made, the terms of debt repayment as well as how it is utilized should be considered in order to ensure that debt remains sustainable.

Owino said that Kenya's public debt to Gross Domestic Product (GDP) ratio is currently close to 50 percent. He added that the figure hides a lot of crucial data because it is based on the rebased GDP which includes the informal sector.

"We are using a superficial method to measure the public debt to GDP ratio as the GDP has been increased and so it lowers the ratio, making the debt look more sustainable," he added.

The expert said that the informal sector however does not pay its full share of taxes and so the sector complicates the government's revenue raising efforts.

The CEO said traditional sources of loans such as multilateral institutions and foreign nations that offer long-term concessional loans are the best source of funding.

"So if Kenya decides to borrow funds, it must ensure that the funds increase the country's capacity to repay the loan," he added, urging Kenya to try as much as possible to live within its means in order to reduce the public debt. Enditem