When the Central Bank of Kenya (CBK) through a House committee report recently presented in Parliament revealed that the Government has surpassed its overdraft limit, it was clear that our goose is cooked. To shoot from the hip, Kenya is facing dire cash flow problems.
The CBK Act outlines that an overdraft facility should not exceed 5% of the gross recurrent revenue of the Government’s previous audited accounts, with the current limit set at Sh80.05 billion. A significant portion of that limit has already been utilized, leaving only Sh1.08 billion as of June 2, 2023. As at May 5, outstanding overdrafts had hit a staggering Sh78.53 billion.
As the Government borrows more, it incurs interest payments and faces the risk of loan defaults, which ultimately leads to the diversion of resources away from vital public services. This situation, combined with the already high cost of debt servicing, places an additional burden on the public.
As Uhuru Kenyatta’s presidency drew gradually towards an end in December 2022, Kenya’s public debt was at Sh10.42trn ($ 74 bn), a 67% of the national GDP. About half of the amount was owed to foreign entities. All this points to a government not doing everything in its power to sustain and improve livelihoods of her people.
In meeting the needs of a fast changing economy like ours, the new administration should explore alternatives such as reducing expenditure. Quantitative Easing (QE) policy in the U.S. after the 2007 to 2008 financial crisis still rings a bell – instead of raising taxes, governments often issue debt in the form of bonds to raise money.
QE allows governments to buy back the very bonds that they had issued. Some also think maintaining interest rates at low levels will help push up Kenya’s revenue, stimulate the economy, and in turn, help reduce the huge national debt.
As a form of short-term borrowing that helps bridge temporary gaps between budgeted revenue and expenditure, overdrafts are worthwhile. It is, however, not prudent to over rely on them.
In the face of mounting public debt and its impact on the lives of ordinary Kenyans, the Treasury should have looked for better ways of managing the country’s expenditure instead of surpassing the proposed overdraft limit.
Kenya Kwanza administration should reconsider its reliance on short-term borrowing if it is to cushion the masses from the current heavy burden of public debt, high cost of living and over taxation.
The Government can focus on implementing effective measures to manage public debt and reduce the overall debt burden. This includes adopting prudent borrowing practices, improving revenue collection systems, and promoting fiscal discipline. By doing so, the Government can allocate resources more efficiently towards essential sectors such as healthcare, education, and infrastructure development and positively impacting the lives of ordinary citizens.
Minimizing reliance on short-term loans will contribute to building a more stable and sustainable economic environment. It allows the Government to avoid accumulating additional debt and encourages the development of long-term financial planning strategies. This, in turn, promotes economic growth by attracting investments.