Government Borrowing Inching Closer to Crisis -- Report Warns

Nairobi Kenya: The government’s borrowing is approaching crisis levels as the amount it seeks to raise from the domestic market is set to surpass the limit set by Parliament earlier in the year.

According to a Parliamentary Budget Office’s monthly report on the economy for May-June 2013, the government has already exhausted its overdraft facility at the Central Bank.

The report further points to the fact that the government is edging closer to the overall debt limit of Sh1.2 trillion set by parliament in January this year.

“The stock of gross domestic debt which is composed of Treasury bills and bonds as well as overdraft at the Central Bank increased to Sh1.08 trillion by June 21, 2013 (and) is inching closer to the debt ceiling of Sh1.2 trillion set by parliament in January this year,” says the report released last week.

Wage demands

Falling revenue coupled with increased wage demands have put pressure on the government borrowing needs with analysts warning that, left unchecked, the situation may hit unsustainable levels.

“The way this trend is going, we will soon have a debt crisis. We are borrowing too much to run a very expensive government and our import bill is rising fast,” said Mr Kamanda Morara, analyst at Ashanti Research.

Combined with the external debt, the cumulative public debt now stands at about Sh1.9 trillion, with the government projecting that this could rise to Sh2.4 trillion in three years.

Last month, former permanent secretary for Treasury Joseph Kinyua said that domestic borrowing was affected by the volatility in the money market when interest rates rose to more than 25 per cent towards the end of 2011 and early 2012.

The Treasury bills attracted more than 20 per cent yields, pushing up the cost of borrowing.

Interest rates, have however, continued to come down following the reduction of the Central Bank’s benchmark rate to 8.5 per cent in May.

This has also seen average yield rates of 91-day Treasury bills, which is a point of reference for the general trend of interest rates, falling to an average of 9.46 per cent in May from a 10.38 per cent in April ............ Courtesy of Daily Nation Business News.