Kenya’s public debt touched a high of Sh8.7 trillion in September even as the National Treasury issued a circular to ministries, departments and agencies asking them to cut non-essential spending.
Data from the Central Bank of Kenya (CBK) shows that this was an increase of Sh37.9 billion from Sh8.66 trillion in August, even as domestic debt raced past external borrowing.
This means that in three months from July to September, the government borrowed Sh122.04 billion or Sh1.36 billion daily. Much of the cash was from the domestic market, which increased from Sh4.29 trillion in June to Sh4.37 trillion in September.
With the National Treasury cancelling a Sh130 billion Eurobond it planned to issue in the 2021-22 financial year, there was not much growth in the foreign loan portfolio as the government continued to rely heavily on domestic borrowing.
The stock of domestic debt for the first time in a long while overtook external debt, a situation that is likely to continue after President William Ruto said his administration would rely more on the domestic market to finance his budget.
The new National Treasury Cabinet Secretary Prof Njuguna Ndung’u said last week the State would endeavour to replace expensive domestic loans with concessional loans from multilateral institutions such as the World Bank.
“The new administration has carefully reflected on the current situation and taken decisive measures to create fiscal space and sustain the reduction in fiscal deficit, signalling the beginning of fiscal consolidation,” said Prof Ndung’u.
The debt ceiling has since been raised to Sh10 trillion after Parliament failed to enact a proposal by the National Treasury to change the debt ceiling from a nominal peg to a percentage of the gross domestic product (GDP).
The National Treasury has announced plans to increase tax revenues even as it cuts spending, especially on operations and maintenance as it targets to reduce the budget hole to 5.7 per cent of the gross domestic product (GDP).
This will be done through a supplementary budget, the first one for the 2022-23 financial year. The mini-budget will make changes to the spending plan for the remaining months.
Until the end of the current financial year in June 2023, there will be no foreign travelling by civil servants, training, buying of cars, purchase of furniture and refurbishment of buildings.
The government has also frozen all new projects and asked ministries, departments and agencies (MDAs) to rationalise those with implementation challenges. However, President Ruto’s government wants more money allocated to fighting drought and other emerging issues.
In an interview with The Standard, immediate former Treasury Cabinet Secretary Ukur Yatani said despite the economy experiencing external and domestic challenges, such as the war in Ukraine and drought respectively, the economy is largely stable.
“The reforms that we have undertaken at the National Treasury in the last three years during my time here have been unprecedented,” said Mr Yatani, noting that he had addressed most of the challenges that have confronted the country in the past, including increasing tax collection and reducing debt.
He warned against criminalising or politicising debt, saying it had helped open up the country by financing various infrastructural projects.
But he also admitted that the “pace of our ambitions was quite high,” resulting in over-borrowing. In his last budget, former President Uhuru Kenyatta’s administration borrowed. Sh747.8 billion for the year ending June 2022. This was the lowest budget deficit — the difference between total revenue and total expenditure of the government — since President Kenyatta took over in 2014.
This deficit was 5.9 per cent of the gross domestic product (GDP), a major achievement for an administration that has been grappling with high debt levels. Yet, President Kenyatta’s spending plan has been marred with controversies, with critics arguing that the Jubilee administration overborrowed to pump money into projects that have not stimulated the economy.
For every Sh100 that the Kenya Revenue Authority collects, about Sh32 will be used for interest payments by the end of June 2023 when the last of Mr Kenyatta’s budget will be implemented.