Kenya should consider partnerships with the private sector to help fund government spending because it doesn’t have much room to increase debt, Central Bank of Kenya (CBK) Governor Patrick Njoroge has revealed.
The country’s debt is at about 62% of gross domestic product, Governor Patrick Njoroge said Wednesday in an interview with Bloomberg TV at the World Economic Forum in Davos. While the increase in credit in recent years was mainly to finance significant infrastructure spending, “we don’t have much headroom for additional debt financing,” Governor Njoroge said.
President Uhuru Kenyatta’s administration plans to boost its revenue and narrow the budget gap in the 12 months starting July to 4.9% of GDP from an estimated 6.3% this fiscal year. That’s amid pressure to boost funding for manufacturing, housing, farming and health care projects and after the International Monetary Managing Director Kristalina Georgieva cautioned the government against a plan to ramp up debt.
“The issue for us is how to energize the economy so we can increase the economy’s repayment capacity, both in terms of government revenues or foreign-exchange earnings, if indeed the payments are external,” he said. The efficiency of the projects to deliver returns is critical, he said.
Kenya is revising spending plans and improving tax administration to increase collections, with a view of almost halving the budget gap in four years. A smaller budget deficit should be welcomed, Njoroge said.
The Monetary Policy Committee cut its key rate for the first time in 16 months in November and will assess the impact this has had on the economy when deciding if there’s room for more easing, Njoroge said.
Before that cut the MPC repeatedly said a cap on borrowing costs, which limited what lenders would charge on loans to 4 percentage points above the central bank rate, hampered the transmission of policy decisions to the economy. The panel is scheduled to announce its next rates decision on Jan. 27, 2020.