Kenya’s stock of public debt crossed the KSh9 trillion ($72 billion) mark for the first time in December, pushing the country closer to hitting the KSh10 trillion ($80 billion) ceiling set by Parliament in June last year.
This at a time a weak Kenyan shilling has piled pressure on the country’s external debt repayments with some 69.3 per cent of foreign debt denominated in US dollars.
Data from the Central Bank of Kenya (CBK) shows public debt hit KSh9.145 trillion ($73 billion) in December, made up of KSh4.472 trillion ($36 billion) in domestic debt, KSh37.88 billion ($303 million) publicly-guaranteed debt and KSh4.673 trillion ($37 billion) in external debt.
The debt is poised to get past the KSh9.44 trillion ($75 billion) mark by June, according to earlier estimates by the Parliamentary Budget Office (PBO), which will be just KSh560 billion ($4.5 billion) shy of hitting the ceiling.
The National Assembly in June last year increased the public debt limit to KSh10 trillion ($80 billion) to allow the government to borrow KSh846 billion ($6.8 billion) to plug the budget deficit in the 2022/23 financial year.
President William Ruto is facing a fiscal deficit of KSh695.2 billion ($5.6 billion) in his first budget of KSh3.641 trillion ($29.1 billion) for 2023/24, which will force Parliament to raise the debt ceiling for the second year running to keep borrowing within the law.
Plug budget deficitKenya’s Treasury plans to plug the budget deficit in the next financial year through external loans of KSh198.6 billion ($1.6 billion) and kSh496.6 billion ($4 billion) domestic loans.
The Kenyan government is also forging ahead with plans to replace the nominal debt ceiling with a debt anchor expressed in present value terms as a ratio of the gross domestic product.
Treasury told the International Monetary Fund in December that the new framework will “strengthen the credibility of the government’s strategy to reduce debt vulnerabilities by enhancing transparency and accountability around the envisaged path to reach the medium-term anchor”.
The PBO, which advises lawmakers on budget matters, last year warned that the huge accumulation of debt will see expenditure on debt servicing and other routine expenditures continue to crowd out development funding.
Debt service expensesDebt service expenses have increased over the last few years, from KSh850.01 billion ($6.8 billion) in 2021/22 to KSh1.3 trillion ($10.4 billion) in the fiscal year 2022/23. It is projected that this will increase to KSh1.8 trillion ($14.4 billion) in 2024/25.“Increased expenditure on public debt interest payments coupled with growth in expenditure on operations and maintenance have been some of the drivers of the accelerated growth in recurrent expenditure relative to economic output,” said PBO.
Debt service expense as a proportion of ordinary revenue has increased from 49 per cent in 2019/20 to 65 per cent in 2022/23. This indicates that generated revenues are increasingly being used to repay public debt, which is a non-productive expenditure, rather than to meet productive expenditure needs.“Further, the share of ordinary revenue used to service interest payments on the public debt increased from about 15 per cent in 2013/14 to around 30 per cent in 2021/22,” it said.
Increase revenue collectionTo ease spending pressures in his first budget, President Ruto wants to significantly increase revenue collection, stop subsidies on fuel, electricity and food and accelerate reforms in state-owned entities to end their reliance on government funding.
Treasury expects to collect KSh2.89 trillion ($23.1 billion) in revenues in 2023/24 to fund its spending, a 15.1 per cent increase from the KSh2.51 trillion ($20.1 billion) estimated to be collected in the current financial year which will be supported by a retinue of new tax measures.“The fiscal policy continues to pursue growth friendly fiscal consolidation to preserve debt sustainability. This will be achieved through enhancing revenue collection and curtailing non-core expenditures while prioritising high impact social and investment expenditure,” said Treasury in the draft 2023 Budget Policy Statement.
Non-priority spendingPresident Ruto has promised to reduce non-priority spending by KSh300 billion ($2.4 billion) in the current year’s budget in a cut that the Cabinet last week said will be included in the supplementary budget in a bid to reduce pressure on a broke Treasury.“On the state of the economy, Cabinet approved the FY2022/23 Supplementary Estimates No 1 that rationalises the FY2022/23 national budget with the administration’s priorities. The supplementary budget gives effect to the Presidential directive to realise savings of KSh300 billion as a measure of containing the fiscal deficit,” stated Cabinet statement. © Copyright 2022 Nation Media Group. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info).