Treasury says debt levels manageable

February 21, 2011

, NAIROBI, Kenya Feb 21 – The Ministry of Finance says it is not worried about Kenya’s debt levels even as the country continues to face challenges to mobilise funding for development projects.

According to the Treasury, pressure is currently coming from implementation of the new Constitution and the drought situation.

Ministry of Finance Permanent Secretary Joseph Kinyua on Monday said the Treasury had internally mobilised an estimated Sh11.4 billion to finance implementation of the Constitution and drought response initiatives.

The Finance PS said Sh3.4 billion would go into implementation of the first phase of the new law, while Sh8 billion will be used to respond to the drought situation in the country.

“This has been sourced mainly from looking at the budgets of ministries and where they had expenditures especially recurrent they can be able to spare and fund these crucial initiatives,” Mr Kinyua said.

He however said this had forced the ministry to increase its borrowing to meet growing expenditure requirements.

In its quarterly economic and budget review, the Treasury said net domestic borrowing stood at Sh54.5 billion against a target of Sh90 billion raising concern that it may be forced to borrow heavily externally as the target could not be met internally.

Mr Kinyua however said the Ministry of Finance was working out how best to manage its debt levels as it faces pressure to source funding for development projects.

"We continue to manage our borrowing in a manner where we will not go into levels that would make it difficult to service our debts. Kenya is committed to remain current both in terms of our domestic and external debt obligations,” the PS said.

External borrowing in the first half of the 2010/11 financial year amounted to Sh12.4 billion while repayment stood at Sh2.9 billion in a similar period in 2009/10.

Total gross domestic debt stock increased by 9.1 percent from Sh660.3 billion at the end of June 2010 to Sh720.3 billion by the end of December 2010. The total external debt stood at Sh599.9 billion at the period ending December 2010.

The debt stock comprised multilateral debt (60.7 percent), bilateral debt (35.8 percent) and Export Credit debt (3.6 percent).

“Kenya is able to maintain its ability to service its debts because we have never over borrowed as a nation.  Even the current borrowing is being matched with growing the economy so that as a proportion of GDP it remains sustainable,” Mr Kinyua said.

He said the economy was still on an upward trajectory despite rising inflation and was confident the economy would meet its 5.7-6.0 percent growth targets.

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