Kenya's debt payment climbs by 177 billion

Near-double rise in the amount over the last eight months reverses gains made in revenue collection.

A surge in Kenya’s debt obligation dealt a blow to President Uhuru Kenyatta’s austerity programme in the first eight months of the current financial year.

According to the latest statement by the National Treasury on revenues and expenditure, debt payment grew by 75 per cent to Sh413.7 billion as of February compared with Sh236.3 billion in the same period last year.

This in effect wiped out most of the gains the Government had made in tax collections during the period.

This is despite the fact that Treasury had impressively contained growth in recurrent expenditure (spending on salaries and administrative costs) to a marginal increase of 2.5 per cent, that is comfortably covered by a seven per cent increase in tax collection, but debt payments tend to have gobbled more than twice the amount it disbursed to the 47 counties.

The country is expected to repay debts amounting to Sh1.4 trillion, including rollovers, between January and December this year, pointing to a looming cash crisis.

An increase in debt payment contributed to the growth of expenditure (25 per cent) against revenues rise of 22 per cent, leaving the Exchequer with a modest Sh20.9 billion in unspent balance in its coffers compared with Sh41.4 billion it had by February last year. The Treasury report also showed that development expenditure increased by 25 per cent to Sh184.6 billion, up from Sh147.4 billion, despite President Kenyatta’s directive that all State agencies freeze new projects until all the ongoing ones are completed.

Treasury expects the fiscal deficit - the difference between the country’s expenditure and its revenue as a fraction of the gross domestic product - to decline to 6.3 per cent in the current financial year, up from 7.2 per cent recorded in the previous year. The fiscal deficit is expected to decline further to 3.1 per cent in the medium-term as the Government restricts growth in recurrent spending.

“In the financial year 2018/19, the Government implemented a raft of tax policy measures through the tax amendment law and the Finance Act 2018 whose revenue yield is estimated at about 0.9 per cent of GDP,” said Treasury in the 2019 Budget Policy Statement.

Treasury is betting on new taxes, including the eight per cent Value Added Tax on petroleum products, increased excise duty on mobile money transfer services, airtime and internet data to narrow the difference between its revenues and expenditure.

Disbursements to counties increased by 40 per cent to Sh177.3 billion.