Salaries and debt repayment take bulk of tax revenue

For every Sh100 that the Government collected in the first five months of the current financial year, Sh59 was used to pay salaries, pensions, and interest on debts.

Data from the Central Bank of Kenya (CBK) shows that while tax revenue grew by about nine per cent between July and November 2017, expenditure on the three items increased by 16 per cent in the same period.

The Government collected about Sh1.4 trillion, Sh118.8 billion more than in the same period in the 2016/17 financial year when Sh1.3 trillion was collected.

However, expenditure on wages, debt repayment, and pensions went up to Sh859.6 billion in the first five months of the current financial year compared to Sh741 billion in the same period last year.

Generally, the country’s tax revenue continues to play catch-up with a runaway recurrent expenditure, making it difficult for the Government to tame the ballooning fiscal deficit - when a government’s total expenditure exceeds the revenue that it generates.

Wages paid to civil servants, which take up the lion’s share of recurrent expenditure, grew the fastest, adding Sh59.2 billion to the total recurrent expenditure.

Within the period, the Government paid Sh480.6 billion in wages compared to Sh421.3 billion the previous financial year.

Growing bill

The Government has acknowledged the danger of the growing wage bill.

“In terms of percentage of GDP, the wages and salaries bill for teachers and civil servants, including the police, is expected to reduce to 4.5 per cent of GDP in the FY 2018/19 from 4.6 per cent in the FY 2017/18,” said National Treasury Cabinet Secretary Henry Rotich said in the 2018 Budget Policy Statement released last week.

The wage bill is likely to grow even bigger after President Uhuru Kenyatta recently constituted an expanded Cabinet comprising of chief administrative secretaries (CAS) in addition to Cabinet and principal secretaries.

Initial estimates show that the expanded Executive might cost taxpayers almost half a billion each year in salaries alone. The 22 CSs, including a part-time one, and the 21 CASs will cost taxpayers Sh486.4 million each year if they earn the same pay.

For every Sh100 that the Government collected during the period under review, Sh22 went to paying interest on debts. This was an increase from Sh19 in the same period in the 2016/17 financial year.

A growing public debt has been a major headache for the current administration, with the total debt stock at Sh4.6 trillion as of November 2017.

Reliance on foreign loans has seen the fraction of external debt surge to Sh2.4 trillion from a low of Sh875 billion in July 2013 when the Jubilee administration ascended to power.

The National Treasury has, however, on several occasions sought to allay fears about the increasing debt burden, saying the level is sustainable.

The weakening of the shilling against major foreign currencies in which the external debt is denominated means the country’s debt has gone up simply by virtue of a weakening local currency.