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Public Debt Management; Why is it Crucial for Kenya?

  Nov 22, 2019

The International Monetary Fund, IMF, defines public debt management as the strategies a government employs to manage debt, both domestic and external. Public debt management is very crucial as public debt directly affects the country’s macroeconomic stability and mobilization of long-term resources for the development.

Over the past six years, the number of African countries in Sub-Saharan Africa falling into debt distress or at high risk of external debt default has almost doubled.

The IMF Regional Economic Outlook for Sub Saharan Africa launched at the Strathmore University Business School on 29th October 2019 highlighted high levels of public debt and debt risk in Sub-Saharan Africa.

The report reads in part, “Public debt levels and debt risk is rising, which might jeopardize debt sustainability in some countries; the availability of good jobs has not kept pace with the number of entrants in the labor force; fragility is costing the subcontinent a half of a percentage point of growth per year; gender gaps persist and are keeping the continent from reaching its full growth and innovation potential, and 416 million Africans still live in extreme poverty. ”

As a means of public debt management, the Kenyan government had put in place a public debt cap rate of 50% of GDP. This cap was scrapped in October of 2019 when Kenyan lawmakers approved the National Treasury’s proposed a ceiling of 9 trillion shillings ($86 billion). This will allow the government to increase borrowing to almost match the size of the entire economy, almost doubling the previous cap.

As of March 2018, the total stock of debt in Kenya amounted to Ksh 4.9 trillion, which comprised of Ksh 2.37 trillion domestic and Ksh 2.51 trillion external debt.

Currently, Kenya’s public debt stands at 62 percent of gross domestic product and is soon estimated to hit 70 percent of GDP, if the current borrowing rate continues.

“It is important for governments to adopt effective public debt management measures which ensure the debt is not accelerating.
One of these measures could be to ensure that in the planned fiscal consolidation the government must stick to a path that seeks to reduce debt from 62 percent of GDP towards 55 percent in the medium term,” said Peter Chacha, World Bank senior economist.

Click here to learn more about the Strathmore Institute of Public Policy and Governance, (SIPPG).

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