Tame the growing appetite for loans

Kenya’s incredible appetite for loans is worrying and, unless checked, risks hitting dangerous levels. Currently, the loan portfolio stands at Sh5.1 trillion, more than double the annual budget. This week, the National Treasury secured a fresh Sh210 billion Eurobond, the third in five years, raising questions about the country’s financial management.

In 2014, the country took its first Eurobond of Sh280 billion, which was marred by controversy because no proper explanation of its use was given. After several false starts, the Auditor General eventually declared that the money may not have been lost, but was unable to explain how it had been used, since it had been mixed with recurrent expenditure.

Last year, the government obtained another Sh201.2 billion in yet another Eurobond. Again, there is no clarity of how it was used. The trouble with loans is that they crowd out cash for other priority needs. When the government collects revenues, the first duty is to pay maturing loans. In our circumstances, revenues have declined drastically for reasons, including corruption and poor collection strategies. Even then, the National Treasury is under obligation to first repay the loans before funding anything else.

The net result is that little is left for normal government operations, let alone capital development and this necessitates further rounds of borrowing. Matters are made worse considering the government’s craze for huge infrastructure projects. In all this, the country is put on a debt treadmill — running on the same spot and never reaching any destination.

Ideally, the National Treasury should be concerned with addressing the economic depression characterised by declining revenues and high inflation rates. It ought to institute measures to spur growth and reverse declines. To be sure, there are several reasons for the prevailing state of affairs, but three are critical.

First is poor management of public finances. The National Budget is replete with luxury and non-core items that gobble up billions at the expense of priority expenditure. Waste and profligacy is the order of the day at the national and county governments.

Second, resources allocated for capital projects and recurrent expenses are routinely stolen. Billions of public funds are lost through corruption and, unfortunately, perpetrators hardly get punished.

Third, the Kenya Revenue Authority is unable to collect taxes due to corruption and poor management.

Kenya does not need to borrow; it only needs to manage resources prudently. And when it borrows, it must be judicious. Parliament must enforce laws on public borrowing. Excessive borrowing is detrimental to the economy and must be controlled.