Just three months into the fiscal year 2012/13  (with a KES 1.4 trillion budget) the government has so far borrowed close to KES 30 billion.  This is according Central Bank of Kenya's report for the first week of September. Consequently, this extends the government's total debt (both foreign and domestic) to KES 884 billion. Last week, the government borrowed KES 9 billion from the domestic market on account of Treasury bills and Government overdraft at the Central Bank. According to the report, CBK is the majority lender to the government holding over 50% of all government securities by the close of last week.

These high debts could however mean something bad to the taxpayer. Since the government draws most of its revenue from its faithful taxpayers, its debt is an indirect debt to them. High debts mean high budget deficits which will result to high current account deficits. The situation could affect the interest rates, exchange rates and our country's economic competitiveness. The growth of Gross Domestic Product (GDP) will be down as exports will decline, whilst imports will increase.

The more the government borrows, the bigger its interest payments get.  Then the more we spend on interest, the less we have to pay down debt or invest for the future. This interest is ‘dead money’, which means higher taxes for years to come.

Government borrowing increases the total demand for credit in the economy as well, driving up the cost of borrowing in the process. Higher borrowing costs make it more expensive to finance investments in equipment, stock and other capital goods in the private sector. This harms the ability of the private sector to create the wealth and jobs needed to get us out of recession.

With a deficit of close to 7% of the total budget the exchequer is looking to fund its deficit partially through domestic borrowing of KES 106 billion.