CS Rotich quells bankruptcy fears as national debt hits 52%

National Treasury Cabinet Secretary Henry Rotich has allayed fears over the growing public debt saying that the country still has a large headroom to absorb and pay back more infrastructure loans which have left the country almost insolvent.

The CS has said that although the debt has hit 52% of the Gross Domestics Product (GDP), the country won’t go broke. Speaking during an economic symposium in Nairobi, Mr Rotich said: “We have done a debt sustainability analysis, looking at it (debt) over the next 30 years in terms of payments plus interest. Its net present value is about 45% of GDP.Debt should be looked at in terms of the ability of the economy to generate returns for payback.”

At 52%, Kenya debt is below the 74% threshold set for it by the World Bank in its Country and Policy Institutional Assessment Index. Kenya’s output is valued at Ksh4.75 trillion, meaning its debt stands at Ksh2.5 trillion. The economy is expected to expand 6.9%, up from the estimated 5.3% last year, a projection that Mr Rotich feels will be crucial in managing the debt.

“We project a sustainable positive growth in 2015 going forward by registering an expansion of 6.9 per cent and achieve growth of 7 per cent by 2018,” he said. Mr Rotich presented the 2015 Budget Policy Statement containing the projections to the National Assembly alongside the Medium Term Debt Management Strategy.

According to the CS, the borrowed money will meet the cost of the country’s infrastructure development, which will go a long way in increasing GDP in the second Medium Term Plan, 2013-2017.

“The money has been borrowed to finance the Ksh327 billion Standard Gauge Railway, 10,000 Kilometre road annuity programme, the 5,000-plus megawatt electricity project as well as fund the ongoing projects under Lamu Port and South Sudan Ethiopia Transport (LAPSSET) Corridor project and irrigation,” he said.

The National Treasury is hopeful of a robust growth-tied five factors-conducive business environment for jobs creation, increased agro-processing for solid exports and robust transport and logistics infrastructure. Others are further empowerment of the 47 counties and social protection programmes.

The Institute of Certified Public Accountants of Kenya (ICPAK) said that Kenya’s debt was sustainable but called for prudent spending on sectors that would ignite huge returns to the economy. “There is no cause for alarm, but the borrowed funds must be used on the intended projects to increase the GDP of the country,” said ICPAK chairman Mr Benson Okundi.

Kenya raised Ksh251.5 billion last year from a debut Eurobond-$2 billion (Ksh 83 trillion) in June and remaining in December, largely to finance infrastructure development. It has indicated interest in floating a Yen-denominated Japanese Samurai bond and another Sharia-compliant Sukuk for cash –from oil-rich Middle East nations.

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