We’re over borrowing ceiling, says CBK boss
Kenya cannot afford to take more loans since mega infrastructure projects undertaken by the Government are not making any money to repay debts.
Central Bank Governor Patrick Njoroge said the State had to abandon the model of borrowing and let the private sector drive the economy.
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“We have less headroom to borrow and we are running out of space. We need to look at public-private partnership and build operate and transfer models,” said Dr Njoroge.
“We have had 15 per cent rise in debt over the past few years but what is the return? In fact it is negative, infrastructure is costing us money. We do not have to look very far, Hambantota port in Sri Lanka is gone,” said Rich Management CEO Aly Khan Satchu.
Operations at the Standard Gauge Railways will take at least three years before it breaks even, according to Kenya Railways Corporation Managing Director Atanas Maina. And until then the Government is sinking in more money to run it.
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“Any business takes about five years to break even and we are targeting three. We want to have a surplus by five years,” said Mr Maina.
He said he could not provide the exact cost-plugging the Government was doing because factors keep changing, citing the number of trains they are running, which will soon grow to seven, as an example.
In energy, Kenya is paying billions of shillings for over-capacity and guarantees to firms for idle plants, including Sh13.9 billion to Lake Turkana Wind Power and Sh37 billion to Lamu Coal-fired plant.
On roads, the Government has realised that the Road Maintenance Levy factored in retail fuel prices has not been adequate to cater for road repairs, and hence use of major trunk roads will attract a fee as the Government sets up toll stations along them.
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The three were speaking yesterday at the Moody’s fifth Annual East Africa Summit in Nairobi where the ratings firm pointed out that commercial borrowing has contributed to worsening debt affordability.
“Interest payments take up a larger share of Government revenue in all four East African countries compared with five years ago,” Moodys said in a report.
“The deterioration in debt affordability has been most severe in Kenya; interest on debt took up 19 per cent of revenue in FY 2016/17, up from 11 per cent in FY 2011/12, which was already above the B-rated median,” the ratings agency said.
Despite the clarion call for Public Private Partnerships to deliver the Government’s agenda, Treasury has continued to run huge deficits and targets to borrow Sh562.7 billion in the current financial year.
The debt levels have hit Sh5 trillion and with large repayments pushing interest and redemption to Sh870 billion, including two syndicated loans and the part of the 2014 Eurobonds.
The Government says that debt which is currently 60 per cent of the GDP is still manageable, maintaining that the tipping point is 74 per cent.
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“If we are talking about 74 per cent of the GDP are we deluded? We are extremely fortunate that the shilling strengthened because of growth in remittances,” said Mr Satchu.
The CBK boss, however, said fiscal consolidation targeting 5.7 per cent of GDP will be good for the economy, offering hope that the State will borrow less.
Treasury wants to offload pension burden to a scheme where civil servants contribute, control procurement and pre-approve any new projects to limit spending.