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Interest payments weigh heavily on taxpayers

By Dominic Omondi | Published Sat, August 25th 2018 at 00:00, Updated August 24th 2018 at 22:32 GMT +3

A huge chunk of the country's taxes was gobbled up by creditors in the 2017/18 financial year, with interest payments on debt rising 20 per cent to Sh320 billion.

Latest data from the Central Bank of Kenya on Government expenditure shows that the State paid Sh266.3 billion in the year ending June 2017.

This meant that for every Sh4 collected in taxes, one shilling was used to pay interest on debt.

A large fraction of the interest payment went to domestic debt, which took up Sh239.4 billion while foreign creditors received Sh81.6 billion.

However, the interest on foreign debt more than doubled from Sh53.5 billion in 2016/17, a situation that saw Treasury go for its foreign currency reserves.

And while the Government argues that the payment was for development projects that will grow the economy, it is also money that would have been used to hire more teachers, buy drugs for public hospitals or even buy seeds for farmers.  

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The burden gets heavier when you factor in debt redemption of close to Sh100 billion of a syndicated loan that was offset using proceeds from the Eurobond. This meant that in the last financial year, Kenya paid Sh420 billion to creditors.

Reduce deficit

However, spending on development activities such as building of roads, ports and energy projects fell by 25 per cent from Sh654 billion in 2016/17 to Sh489.7 billion in 2017/18 as Treasury came under pressure to reduce its budget deficit.

In its last review of the country’s economic outlook, the International Monetary Fund (IMF) lauded the National Treasury for narrowing the gap between its revenues and its expenditure to seven per cent of the gross domestic product in the financial year that ended June 30.

"The authorities reiterated commitment to macroeconomic policies that would maintain public debt on a sustainable path, contain inflation within the target range, and preserve external stability," said the IMF. 

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