Kenya’s budget will touch a record Sh4.05 trillion for the first time, according to new data released by the National Treasury.
This is when debt redemptions of Sh702.5 billion, which were left out of Treasury Cabinet Secretary Ukur Yatani’s Budget statement on the country’s Sh3.34 trillion spending plan delivered last Thursday, are included in what is President Uhuru Kenyatta’s last Budget ahead of the August 9 polls.
Exclusion of debt redemptions in the Budget has been a thorny issue in every financial year, with lawmakers and Treasury pulling in different directions.
While MPs tend to include redemptions - which simply refer to the repayment of public loans—Treasury does not.
Redemptions can also include roll-over or rescheduling of loans, which means the government might not spend the money.
“When you see a Sh3.3 trillion, you should take it at face value,” said an analyst who did not want to be mentioned. Treasury does not think that redemptions should be included in the computation of the total Budget.
However, critics reckon Treasury is playing games and has been using this to suppress the actual size of the budget.
In the 2021-22 financial year, CS Yatani in his Budget statement put the country’s total budget, excluding Sh608.9 billion in debt redemptions, was estimated at Sh3,030.3 trillion.
Experts said although public debt should be paid, debt redemption by rescheduling, is desirable, too. To save the government from bankruptcy and to raise the confidence of lenders, it has to redeem its debts from time to time.
Some domestic debts or government securities — Treasury Bonds and Treasury Bills are rolled over when they mature by taking a new loan. Amounts above the redemption are what are used to finance the budget.
This is what is described as net domestic financing. Similarly, external loans are refinanced or rescheduled by, for example, issuing a new Eurobond.
“In both categories of debt, interest payments appear in the budget as these are recurrent expenditures to be financed through revenue,” said a Treasury official who did not want to be quoted as they are not allowed to speak to the media.
In the upcoming 2022-23 financial year, which begins in July, the National Treasury is expected to spend Sh687.9 billion on interest payments, according to the Budget Policy Statement 2022.
Kenya has no intention of rescheduling its external debt, said the Treasury official.
If you add redemptions to interest payments, then the country’s total debt payments shoot to Sh1.39 trillion.
And if the government was to pay all these debts—which are normally paid using tax revenues—and other expenditures that are normally funded using tax revenues, there would be no money left for wages and salaries.
A source at Parliamentary Budget Office (PBO), an advisor to the National Assembly, while agreeing that it is about a difference in approach, said the size of the budget for them is Sh4.04 trillion. The Sh702.5 billion that was not captured, said the source, is considered a “below the line cost” that some accountants do not think should be included.
Critics insist that this figure is a liability that has been increasing over the years, insisting that the reason the figure is never included is that Treasury and the creditors have not agreed on the method of redemption.