Kenya’s debt nears Sh6tr as Treasury goes on a borrowing spree

Central Bank of Kenya Governor Patrick Njoroge says the budget deficit has expanded to 7.4 per cent of GDP past Treasury’s target of 6.8 per cent. [Standard]
Kenya’s public debt surged closer to Sh6 trillion at the end of June after Treasury borrowed an additional Sh770 billion in 12 months.

Central Bank of Kenya’s weekly bulletin showed that the country’s public debt expanded by 15.2 per cent to hit Sh5.89 trillion from Sh5.039 trillion in June 2018, as Treasury plunged into the credit market to fund infrastructural projects.

The debt was also used to finance President Uhuru Kenyatta’s Big Four agenda. Central Bank of Kenya Governor Patrick Njoroge said the budget deficit- the difference between expenditure and tax revenue- as a result, expanded to 7.4 per cent of GDP past Treasury’s target of 6.8 per cent.

The stock of foreign loans increased by Sh462 billion to reach Sh3 trillion while domestic debt went up by Sh307 billion.

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This means debt owed by every Kenyan, also known as debt per capita, has increased three-fold to Sh115,690 in June this year from Sh42,215 when President Uhuru Kenyatta appointed the embattled economist to control the country’s purse strings in 2013.

A statement by National Treasury on revenues and exchequer issues published in last month’s Gazette notice showed that the country incurred Sh975.8 billion loans in the 2018/19 financial year.

Huge chunk of debt

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Half of these loans were used to repay creditors, including the holders of Kenya’s first Eurobond that matured during this period, while the rest went into development projects.

These include President Kenyatta’s Big Four agenda of creating jobs, ensuring access to universal healthcare and nutritious food as well as building half a million cheap houses.

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Rotich is among the 28 State officials charged with graft over two multi-billion-shilling dam projects.

But even as debt has grown, the country’s output has not kept up with income per every Kenyan (Gross Domestic Product (GDP) per capita) during this period, increasing at a slower pace of 15 per cent from Sh87,260 to Sh100,310.

The Government has, however, insisted that the huge chunk of debt accumulated during Rotich’s six-year stint at Treasury, about Sh3.64 trillion, has had a knock-on effect on the country’s economic growth.

President Kenyatta said the money has been used to build railways, ports, power lines, dams and many other infrastructure projects.

Worrying

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“What would worry me is if the debt that we have incurred has gone into recurrent expenditure, has gone into paying salaries or electricity bills and so on and so forth. But what we have utilised our loan for is to close the infrastructure gap,” said President Kenyatta last year in an interview with CNN journalist Richard Quest.

Debt levels have tripled from Sh1.8 trillion in June 2013 to Sh5.89 trillion as of June this year.

Much of the debt is owed to China, which has extended loans for infrastructural projects, including the Standard Gauge Railway.

However, Treasury has not been fast at mobilising tax revenues, which have barely doubled in the six years Rotich has been at the Exchequer.

The tax collected increased at a slower pace - from Sh739.8 billion in 2013 to Sh1.4 trillion in the period under review, and with the Head of State’s love for mega projects, the country has been forced to go on a borrowing spree.

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Debt as a fraction of the country’s total income or GDP per capita has also surged from 38.2 per cent in 2012 to 57 per cent in 2018, an indicator that Kenya’s ability to repay its debt has declined over the last six years.

The International Monetary Fund last year noted that Kenya’s risk of defaulting on its debt had increased from low to moderate.

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TreasuryKenya’s public debtCentral Bank of KenyaBig Four agendaStandard Gauge Railway