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Mismatch in revenue projection, collection linked to debt crisis

By Graham Kajilwa | August 27th 2021

The report says since 2013, the country’s debt portfolio has grown by Sh2.3 trillion. [Courtesy]

Kenya’s debt will be nearing the Sh9 trillion mark next year, with the mismatch in revenue outlook collection worsening the crisis.

Analysing a report by the Institute of Public Finance Kenya (IPFK) titled Kenya’s Public Debt Profile yesterday, economists said the country’s appetite for commercial loans to finance infrastructure projects was doing more harm than good.

IPFK Head of Research John Nyangi said commercial loans due to their short grace period and high-interest rate, strain the State. “It is expected that by the end of June 2022, the figure will be Sh8.4 trillion nearing the debt ceiling of Sh9 trillion,” he said at the event in Nairobi.

The report says since 2013, the country’s debt portfolio has grown by Sh2.3 trillion to more than Sh7 trillion occasioned by the mega infrastructure projects.

The report says a major increase in public debt is the country’s failure to meet its revenue targets, which leaves the government with the option of borrowing or increasing taxes.

“The State’s ordinary revenue targets keep growing each financial year and these have not been achieved,” notes the report. In the financial year 2016/2017, the target was Sh1.311 trillion while the State achieved Sh1.305 trillion.

For the FY 2017/2018, Treasury was short of Sh124.6 billion while in the FY 2018/2019, the shortfall was Sh88.4 billion. For the FY2019/20, the taxman collected Sh41.96 billion less. 

Kenya’s debt service to revenue collection according to the report is 68 per cent way above the threshold of 30. This means for every Sh100 collected by Kenya Revenue Authority, Sh68 goes to servicing debt.

This figure will be Sh74 by 2022. Kenyatta University scholar Peter Mwiathi said increasing tax does not guarantee more revenue.

“We can increase revenue by reducing taxes,” he said. Mwiathi said the manufacturing sector might not create jobs that would spur economic growth due to high taxes.

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