Experts slam 'temporary fixes' to Kenya's Sh12.6tr debt

The government’s strategy to issue longer-term bonds and venture into public-private partnerships (PPPs) has been described as more of a temporary fix for the country’s ballooning debt burden, which now stands at Sh12.6 trillion. 

Tax experts argue that the government is “kicking the can down the road” with these strategies, which merely postpone the problem to a later date. 

Amid a challenge in raising revenues, the government is also under pressure from multilateral lenders, who now want such debts to be included on the books. 

The experts have expressed concern about a default if key strategies to reduce spending excesses and increase revenues are not implemented, citing Ghana and Zambia as examples. 

A presentation by experts from the tax consultancy firm EY shows that while Kenya’s national debt-to-GDP ratio is projected to average 68.2 per cent this year, this figure is likely to rise. This is against a target of 55 per cent as envisioned by the National Treasury. 

“Looking at how we have been trending on a year-to-year basis, it is unlikely that we are going to go lower,” said Tax Associate Director at EY Kenya Robert Maina. 

He noted that the push by multilaterals such as the International Monetary Fund (IMF) to include other off-balance sheet borrowings, such as securitisation, in the national debt will only push this figure up. 

“If they do succeed, this number will go up. Then we will continue borrowing more than we budget for in our initial budget policy statement,” he said, citing Ghana’s situation, which defaulted on its debt obligations in 2022. 

By that time, Ghana’s national debt-to-GDP ratio was 93 per cent, and it deteriorated further beyond 100. Zambia voluntarily defaulted on scheduled Eurobond payments during the Covid-19 pandemic and only exited the list last year. 

“The government has, however, done a good job in managing the liabilities, but it seems like we might be kicking the can down the road,” he said.

“If you look at the bonds being issued by the Central Bank of Kenya, they are long-term. They are trying to lengthen the maturity profile and ensure the debt burden is not coming through in the next three or five years. We are postponing a problem instead of solving it.” 

President William Ruto’s strategy to lighten the debt burden has involved adopting PPP for capital-intensive infrastructure projects and securitising some revenue lines, which has led to the resumption of road projects. These borrowings are considered off-book.  

Kenya’s challenge with debt, experts noted during the roundtable, is also linked to dismal revenue collections.

Numbers show the country’s tax revenue as a percentage of GDP averages 15.8 per cent. This is according to 2023 figures by the Organisation for Economic Co-operation and Development (OECD). 

The target of the East African Community (EAC) is 25 per cent. Tunisia was presented as an example in the discussion, as its ratio stands at 34 per cent. 

“If we were very good and performing as well as Tunisia, we would not need any further financing because at 34 per cent, we would have collected Sh4.78 trillion,” said Maina.