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CBK Governor cautions on Kenya’s dependence on debt for mega projects

Dr. Njoroge says there is need for fiscal consolidation both in deficit and debt numbers

NAIROBI, Kenya, Jan 23 – CBK Governor Patrick Njoroge has advised that the country needs to seek alternative ways of financing infrastructure projects other than debt.

Njoroge says that although Kenya’s public debt is sustainable at 50 percent of Gross Domestic Product, going forward, the debt financing margin is narrowing and this could be problematic if the country continues to use debt as the only option of financing mega projects.

He says private-public partnerships, as well as Build, Operate Lease Transfer could be other models that could work for financing mega infrastructure projects.

“Projects also need to be well assessed, the costs and benefits to the country. We need proper project appraisals,” Njoroge said a day after CBK’s Monetary Policy Committee held the rate at 10 percent.

Njoroge projects the country will grow by 6.2 percent in 2018 but needs supportive policies to spur growth while reiterating the need to revise the interest rate capping law, which he says is “acting as a break to the economy.”

“Fiscal consolidation is also needed going forward both in deficit and debt numbers,” he advised.

China has been the biggest beneficiary of funding Kenya’s mega infrastructure projects.

Since independence, Kenya has received Sh488.82 billion financial support from China, with the debt growing at an annual rate of 54 percent between 2010 and 2014

According to National Treasury, some of the projects that have benefited from the Chinese development assistance include Moi Sports Complex Kasarani, Moi Teaching and Referral Hospital, Eldoret, Thika Road Development (Lot 3), Nairobi Eastern and Northern Bypass Project and Mama Lucy Kibaki Hospital, amongst others.

Other projects Kenyatta University Teaching and Referral Hospital, Nairobi Southern Bypass Project, drilling of 80 geothermal wells at Olkaria and the construction of the Standard Gauge Railway Project from Mombasa to Nairobi which is by far the biggest Chinese investment in Kenya.

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Construction of the Second Phase of the Standard Gauge Railway Project from Nairobi to Niavasha is also Chinese funded.

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