Government Ahead of Its Domestic Borrowing; Are We Thriving on the Wheels of Debts?

The Government of Kenya is ahead of its domestic borrowing for the current fiscal year having borrowed 235.2 billion shillings against a target of 177.6 billion shillings assuming a pro-rated borrowing throughout the financial year of 229.6 billion shillings budgeted for the full financial year.

The government has only borrowed 205.8 billion shillings of the budgeted foreign borrowing, representing 44.5 percent of its foreign borrowing target of 462.3 billion shillings. Kenya Revenue Authority (KRA) on the other hand has already missed its first half of 2016/17 fiscal year revenue collection target by 3.2 percent and it is expected to miss its overall revenue collection target of 1.5 trillion shillings for the current fiscal year.

Given that the government has less than 2.5 months to the close of the current fiscal year and the fact that borrowing from the foreign market is a much longer process than borrowing from the domestic market, the government is likely to use the domestic market to plug in the deficit that is likely to arise.

This creates uncertainty in the interest rate e­­­nvironment as domestic borrowing may exert upward pressure on interest rates, and result in longer term papers not offering investors the best returns on a risk-adjusted basis.

The government has been on the receiving end of both the opposition and other quarters on its appetite to borrowing from both the domestic and foreign markets. The International Monetary Fund had raised concerns over Kenya’s borrowing spree saying that the skyrocketing debt might be too big for the country to handle. The government has, however, disputed the claims saying that the country was still within the safe brackets of borrowing and that there was no cause for alarm.

The country goes to the polls on the 8^th of August and there are fears that the borrowing will impact heavily when the new government begins a new term in office.