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Sustainable Debt Financing, Investment and Growth

  Aug 12, 2016

According to the 2015 International Monetary Fund Debt Sustainability Analysis report, Kenya currently faces distress in financing external debt. Although this has been termed as sustainable, the recent pace of public debt accumulation has been rapid; calling for a need to limit and eventually reverse the rise in public debt.

Addressing the country’s most pressing financial constraint, Strathmore Institute of Public Policy and Governance, invited Mr. Armando Morales, Resident representative, International Monetary Fund, who explored the risks of sustaining high recurrent expenditures.

Kenya’s middle income economic status attracts more financing from monetary institutions and thus continues to exert pressure on accumulating debt at a faster rate. This makes the need to contain deficits pressing.

Mr. Morales gave reference to the borrowing patterns against the financing of development expenditures, quoting the Public Finance Management Act 15 (2), “…over the medium term, the national government’s borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure.

This he affirmed by stating that the debt deficit has been rising in line with the growing development expenditure. The average ordinary revenue growth is currently at 14%, slightly higher than the nominal GDP growth, where as the average development spending growth has been at 21% inclusive of the SGR project borrowing.

The following are some of the recommendations arrived at during the discussions:

  • Growth-friendly measures taken by the government are necessary to minimize risks:
  • There is need to monitor currency and interest rates risks closely.
  • Allowing more ample room for private sector financing will help bring down interest rates over time.
  • There is need to prepare for the “unexpected” (normalization of interest rates, sudden reversal of oil prices).


Concluding the sessions, Mr. Morales emphasized that high quality public investment will make the debt-investment-growth trinity more sustainable!


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