Treasury Cabinet Secretary Henry Rotich today meets Members of Parliament on the second of a series of crisis talks to explore options for financing more than Sh800 billion in public debt repayments due this year.
This comes on the back of mounting opposition against a 16 per cent Value Added Tax, (VAT) slapped on petroleum products introduced this month that has increased the cost of basic commodities and threatened to exert inflationary pressures on low-income Kenyans.
“We have started consultations today and this is the second of a series of meetings we will have with a view to deal with the issue at hand,” said Treasury CS Henry Rotich last week. This was after a meeting with National Assembly Majority leader Aden Duale and Speaker Justin Muturi among other House committee chairs.
The Kenya Revenue Authority (KRA) stated that the tax would help net at least Sh70 billion in revenue each year.
This means that if the government rescinds implementation of the tax, billions of shillings in debt will either have to be re-negotiated or the government will be forced to head back to the debt market for a bailout.
A bigger concern for the government however is the Sh800 billion in repayments to domestic and external creditors that mature this year against taxpayers’ shrinking capacity for repayments.
This includes Sh93 billion of the first tranche of repayments on Kenya’s first Sh200 billion Eurobond that is due for repayments in the 2018/2019 financial year plus interest.
Another Sh78 billion is owed to the Standard Chartered Bank as part of ongoing payments to the bank’s standby facility.
China’s Exim Bank is also owed Sh37 billion in repayments plus interest for the first installments to loan facilities borrowed for various Chinese funded projects including the Standard Gauge Railway.
In the 2016/2017 budget, Treasury had anticipated to fill the gap by borrowing Sh489 billion from the domestic market, Sh287 billion in commercial loans and Sh55 billion from foreign governments and international organisations.
However, KRA has been hard pressed to raise more than Sh1.6 trillion in revenues meant to finance this year’s Sh2.6 trillion budget - meaning the country has little room to maneuver.
According to financial statements published by Treasury as at July 2018, KRA had collected Sh98 billion of the Sh1.6 trillion target and only Sh30 billion had been sourced from the Sh490 billion in facilities expected from the domestic market.
This forced Treasury to freeze all development expenditure for all ministries and State departments.
This measure is however not enough, and today’s meeting is expected to thrash concessions on a supplementary budget that will cut further spending in both the central and county governments.