Accountants have warned that Kenya was teetering on the brink of a full-blown financial crisis, with the risk of defaulting on its huge debt obligations now a possibility.
The Institute of Certified Public Accountants of Kenya (ICPAK) said the rate at which the country’s public debt is maturing is not commensurate with revenue growth, raising fears of a possible default.
ICPAK Chairman and Chief Finance Officer Julius Mwatu, speaking in Kisumu at the weekend, said the public debt had become a real concern, having reached the Sh4.6 trillion mark in December last year.
"This comprises Sh2.22 trillion of domestic debt and Sh2.353 trillion of external debt," he said at the launch of the ICPAK Kisumu branch.
The country’s mounting debt crisis was recently underlined by revelations that the National Treasury spent more than 90 per cent of the Consolidated Fund on debt repayment in the first quarter of the current financial year.
- READ MORE
- How counties used Sh3.4b Covid-19 cash on TVs, gumboots
- Report shows absorption of development funds still poor
- ICPAK: Delay taxes to ease suffering
- Secretaries' body to review its governing Act
The latest report from Controller of Budget Agnes Odhiambo showed that the share of the fund that went to debt repayment rose by 35 per cent in comparison to a similar period the previous year.
Mr Mwatu said the Government needed to act while it still could, with its wiggle room growing ever so slim.
"We urge the Government to keep an eye on the red flags and warning indicators to ensure that the country is not caught up in a debt crisis in the near future,’’ he said.
"The institute is of the opinion that we must strive to negotiate debt at concessionary terms covering both the cost and tenure of resulting debt.’’
Mr Mwatu questioned the prudence of Treasury’s decision to factor in close to Sh700 billion in the next financial year to servicing the country’s cumulative debts over time.
In the Budget Policy Statement 2018/19, Treasury has proposed that out of the Sh1.68 trillion revenue, Sh688 billion be allocated to servicing existing public debt.
"This translates to 40 per cent of ordinary revenues going into debt servicing, meaning we will mostly be working to repay debts. This is not so good,’’ said Mr Mwatu
In the next financial year, it is estimated that the overall spending deficit will stand at 7.2 per cent of GDP.
Treasury has proposed to plug the financial deficit through additional borrowing, further worsening the country’s debt problem.
Earlier, while speaking in Siaya, ICPAK officials claimed that six Nyanza counties had fared badly in their auditing processes since the inception of devolution.
“The Auditor General is not very happy with Kisumu, Homa Bay, Nyamira, Kisii, Siaya, and Migori counties,” said the head of public policy and research, Frederick Riaga.