The government of Kenya to implement a raft of measures to address the current high debt levels in Kenya and the fiscal challenges the country continues to face
A high fiscal deficit because of higher expenditure than revenue collections is the primary driver of the increased borrowing
The government should channel efforts towards strengthening the Capital Markets structure to ease the pooling of funds by investors to undertake development projects
Economic analysts have urged the government of Kenya to implement a raft of measures to address the current high debt levels in Kenya and the fiscal challenges the country continues to face.
The analysts from Cytonn Investments said the government should work on strategies to reduce the economic consequences of high debt levels and increased risk of debt distress.
The analysts said they commend the government on the continuous efforts to boost revenue collection but believe a lot needs to be done.
Below are some actionable steps that the government can take to reduce the debt overhang;
Enhance Fiscal Consolidation
According to the team, a high fiscal deficit because of higher expenditure than revenue collections is the primary driver of the increased borrowing.
The government can bridge the deficit gap by implementing robust fiscal consolidation through expenditure reduction by introducing austerity measures and reducing amounts extended to recurrent expenditure.
The strategy would also enable the Government to refinance other essential sectors, such as agriculture, which would raise more revenues.
Additionally, the government can limit capital expenditure to projects with either high social impact or a high Economic Rate of Return (ERR), and high economic benefits outweigh costs.
Promote Capital Markets
The government should channel efforts towards strengthening the Capital Markets structure to ease the pooling of funds by investors to undertake development projects.
The country’s capital markets remain dormant, with banking markets having mobilised KSh 4.7 trillion in deposits compared to Collective Investment Schemes at only KSh 0.1 trillion, hence the need to increase support to the sector.
Improving the Country’s Exports
The government should formulate export and manufacturing favourable policies to improve the current account while lowering imports to preserve our foreign exchange reserves.
This would stabilise the exchange rate and stop our foreign-denominated debt from increasing as the shilling depreciates.
Diversification of Funding of Projects
The government should fully operationalise and remove bottlenecks to Private-Public Partnerships (PPPs) and joint ventures to attract more private sector involvement in funding development projects such as infrastructure instead of borrowing.
Enhancing Parliament’s Oversight Role
Parliament is an independent body mandated to oversee the operations of the executive. Therefore, it should ascertain that future debt uptake is well interrogated, is workable and will bring economic benefit to the country. Legislators should ensure that fiscal deficits are sustainable at the budget approval stage to reduce the need for borrowing.
Spur Economic Growth
The government must implement policies that will spur economic growth such as enhancing ease of doing business, promoting tourism, entrepreneurship and innovation so that there is more revenue to growth the economy and pay down debt.
Addressing Financial Weaknesses of Parastatals
The government should revive the economic performance of parastatals or privatise poorly performing ones to release capital, lower debt, and prevent debt widening from losses and inefficiencies.
In a separate story, Kenya is expected to register lower investor sentiments in 2022, owing to the August general election.
Cytonn Investments previously reported that performance would be affected by several reasons, including a cautious stance by investors who will monitor the election proceedings.
The report also foresees an increase in Eurobond yields as concerns over Kenya’s high debt-to-GDP ratio persists and an expected depreciation of the Kenyan currency as a result of increased oil prices globally and high debt servicing costs.
“The investment performance is largely affected by the market sentiments on the macro-economic indicators of an economy as they drive demand and supply which in turn leads to price movements,” the report noted.
The investment firm used the performance of the fixed income, equities and real estate markets in the previous electioneering periods to determine what could happen in 2022.