Policy Monitor, Issue 1 No. 3, January-March 2004 on Kenya's Domestic Debt: Risks and the Challenge of Sustaining Recent Economic Gains

Abstract

One of the fundamental public goods that a government can provide to its citizens is a stable macroeconomic environment supported by prudent fiscal policies. Prudent fiscal policies enable the government to, among other things, run a sustainable debt. Debt service payments are usually made at the expense of essential or productive public spending. In the Poverty Reduction Strategy Paper (PRSP) adopted in 2000, the government set a target of containing domestic debt at 15 percent of GDP by 2003/04. This was to be achieved by maintaining an overall framework of budget surpluses or minimal deficit, scaling back reliance on Treasury bills as a budget financing instrument, developing long-term financial instruments, reversing the net outflows reflected in the external debt repayment, and by restricting borrowing to external concessional terms. However, this target has not been achieved...