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It's Quite Worrying, Sh40 In Every Sh100 Goes Direct To Loan Payment, Says CBK Governor


 NAIROBI, Kenya September 15 - Dr Patrick Njoroge of the Central Bank of Kenya (CBK) noted the serious challenge the country's growing debt could pose to financial stability even as the government pursues faster economic growth after the pandemic .

 He told the Senate Budget and Finance Committee that the country needs to prepare appropriate policy responses related to debt management, which accounts for 56.5% of gross product up from 42% in 2013 when the Jubilee government arrived. in power.

 "This is also problematic because, what we say for example is that if you have it at 11%, what you say is that for Sh100, more than Sh10 goes to debt service and so that only Sh90 remains for the usual service, ”said the governor of the CBK.

 According to documents presented to the committee, total debt service to income increased due to a peak in outstanding debt and changes in the terms of new loans, including the punctual repayment of syndicated loans and Eurobonds in 2019.

 He said, however, that the trend is expected to reverse in the medium term due to improving conditions for new loans and the restructuring of external commercial loans which have long maturities and high interest charges.

 The Governor of the CBK noted that his main concern is the limited capture of investment income through increased exports and taxes.

 “Total debt service as a proportion of income had climbed to over 50% in 2019/20, which means that half of our income went to debt service. Now it's down to almost 40%, but that's something of quite a concern because for every Sh100 you only have Sh60 left to cover regular government functions, ”Dr Njoroge told senators.

 He further told the Senate team that the country needs to reconfigure its external debt that has come from massive borrowing in recent years to build a range of infrastructure projects such as the standard gauge railway and highways including the expected impact is not yet fully felt on the economy.

 “There may be another bottleneck somewhere that you can plug yourself in so that you don't have to increase the tax brackets or the tax base. The question is whether we have faster economic growth. This is for me the overriding question, why can't we capture more of these returns on investment, ”said the governor of the CBK.

 The CBK boss noted that recent efforts to increase Kenya's concessional public debt resulted in a 10.1 percentage point increase in the proportion of multilateral debt from 30.2 percent in June 2019 to 41.3. % in June 2021.

 In March 2021, the IMF assessed Kenya's public and state-guaranteed debt as sustainable but with a high risk of debt distress.

 Dr Njoroge explained that the main factors behind this assessment were the high deficits of the past and the COVID-19 shock and the sharp drop in exports and economic growth caused by the pandemic.

 “Kenya's debt was subjected to lower thresholds and benchmarks during this assessment due to a decline in debt carrying capacity from large to medium, mainly due to moderate global growth driven by the COVID-19 pandemic, "he said in his presentation to the Senate.

 The assessment also took into consideration the financial weaknesses of state-owned enterprises, low export growth, the economic impact of the COVID-19 pandemic, and Kenya's debt sustainability is expected to improve as the Fiscal consolidation is progressing and exports and production are recovering from the global shock which has been highlighted as the main risks to the outlook for the assessment of the country's debt service.

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