DOMESTIC BORROWING NOW IRRATIONAL

There is no doubt that the economy has recorded significant growth in the last four years. One reason for this has been massive investment in our crumbling infrastructure, especially the road network, which is unprecedented in recent memory.

Both economic growth and capital formation have been greatly appreciated by Kenyans. But at the same time, the cost of this growth needs to be re-evaluated against the gains.

Yesterday, we reported, for the umpteenth time, that the domestic borrowing was overshooting reasonable targets set by the Government itself. The debt equals 20 per cent of the GDP against a target of 18 per cent.

A close look of the figures provided by the Central Bank show that domestic borrowing rose from Sh357 billion to Sh390 billion, in the 11 months to May this year.

While Treasury has time and again assured the public that this state of affairs is comfortable enough for our economy, there are issues with internal borrowing which can never be wished away.

For one, last week, the Central Bank was busy imploring commercial banks to bring down lending and other bank rates. But by stepping up domestic borrowing particularly from banks, the Government is helping keep interest rates high because it is competing with the much riskier private sector players. This has an obvious negative effect on private enterprise.

Two, the uncontrolled dependence on borrowing has to come to an end. It has gone on since the Goldenberg scandal when unmanageable budget deficits started. To stabilise the economy and stimulate growth, Treasury has to improve revenue collection and check unproductive recurrent expenditure.

One way of raising collection is timely intervention in productive sectors which yield tax. If that is not done, a time bomb which has been ticking for a decade and a half will explode. If this does not happen in our lifetime, then it certainly will be felt by the yet-to-be born.

It is true that revenue collection is rising, but little of the money is being used to retire domestic debt. We remind the Government again that reducing this burden has to be fast-tracked for the sake of present and future generations.



SOURCE: DAILY NATION