Public debt rose due to weak shilling, says budget controller

Controller of Budget Margaret Nyakang’o when she appeared before the Senate Standing committee Finance and Budget and Council of Governors to deliberate on the prompt payment bill on March 30, 2023. [Elvis Ogina, Standard]

The depreciating value of the Kenya shilling against the US dollar has caused an increase in debt stock and debt repayments in terms of local currency.

Controller of Budget Margaret Nyakang’o, in the National Government Budget Implementation Review Report for the Financial Year 2022/23, said public debt stock recorded 18.8 percent growth from Sh8.63 trillion reported on June 30, 2022, to Sh10.25 trillion as of June 30, 2023.

Dr Nyakang’o attributed the rise to loan disbursements and weakening of the shilling. Public debt stock, according to the report, comprises Sh4.83 trillion from domestic lenders and Sh5.42 trillion from external lenders.

CoB said the continuous depreciation of the Kenya shilling would necessitate an increase in amount required for loan repayments, hence eroding the government’s fiscal space and limiting implementation of other critical policies and programmes, resulting in budget adjustments.

She recommended a special audit of existing and committed loans to link the loans with the projects funded through borrowed funds.

Further, CoB observed that the National Treasury has, over the years, acquired and absorbed loans on behalf of profitable semi-autonomous government agencies. The loans, she said, should be reviewed to transfer payment obligations to the agencies.

The report revealed that the allocation towards servicing the public debt in the FY 2022/23 amounted to Sh1.39 trillion, revised to Sh1.36 trillion in Supplementary Budget I, and Sh1.39 trillion in Supplementary Budget II.

Total expenditure on public debt in FY 2022/23 audit amounted to Sh1.15 trillion, representing 82.8 per cent of the revised annual estimates, compared to Sh847.15 billion recorded in FY 2021/22.

The expenditure comprised Sh543.95 billion towards principal redemption, Sh607.28 billion towards interest payments, Sh1.34 billion for commitment fees, and Sh536.85 million for penalties and other charges. 

The report revealed the overdraft limit for FY 2022/23 was raised to Sh80 billion from Sh75 billion in FY 2021/22. In FY 2022/23, the budgeted overdraft interest charge was Sh5.28 billion, the actual charge was Sh5.16 billion.

The National Treasury, as per the report, paid off Sh543.95 billion of loan principal, Sh607.28 billion as interest, Sh1.36 billion in commitment fees and Sh536.85 million in penalties and other charges.

“The country has a significant amount of public debt denominated in foreign currencies, which makes it vulnerable to currency fluctuations and exchange rate risks,” read the review report.

Nyakang’o said an analysis of domestic debt showed investors preferred the shorter 91-day Treasury Bills, attributed to avoidance of duration risk. On several occasions, the government could not raise adequate funds on the domestic market from Treasury Bonds, signalling a release of long-term lending by investors.

She noted that shorter-term maturity loans are more expensive and pressure revenue as a more significant proportion of the collected income is committed to debt servicing. A high level of pending bills was also revealed.

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