World Bank Kenya country director Qimiao Fan says the country needs to do better and act quickly to transform how it spends money from the government and be more financially disciplined if it is to raise resources for key development projects.
While appearing for an interview with NTV on Tuesday, Qimiao Fan acknowledged that the country’s achievement in trimming its debt-to-GDP ratio from over 70% to about 67% towards the end of last year is praiseworthy. However, he cautioned that this will not in itself guarantee continued financial stability or accelerated economic growth.
“Kenya has been able to reduce its debt-to-GDP ratio… that is a good direction. However, we believe the current reduction needs to be more for it to be sustainable,” said Fan.
According to the World Bank’s country director, Kenya is grappling with a structural problem where most of its public funds go toward recurring expenses instead of development.
“Over 86 percent of Kenya’s public expenditure is on wages, pensions, and interest payments,” he said. “That means there is very little left to build roads, invest in schools, and create more healthcare facilities.”
He added that debt itself isn’t bad, it’s how a country uses it that matters. “There is nothing intrinsically wrong with debt; the question is how you use it: if it is productive use that can help you increase your growth and create jobs, giving you more capacity to borrow,” he remarked.
In its public finance review for Kenya released in May, the World Bank called for bold reforms to cut spending and rein in the country’s rising wage bill.
Key recommendations include a two-year freeze on hiring in the public sector, deep cuts to government travel budgets, and exempting low-income earners from the housing levy. According to the report, the levy increases the cost of labour, which in turn discourages formal employment.
“There is significant room for improving efficiency and equity of public expenditure,” Fan said.
He urged the government to institute long-term structural changes, correct governance, and create a more favorable business environment.
“These steps create a fast-growing economy with more jobs,” he added.
