Kenya’s public debt is projected to surpass the Sh9 trillion limit by June 2023 even as concerns abound that its continued spiralling poses detrimental effects on growth of the country’s economy.
This further raises doubts on whether the country has the ability to repay the huge debt amid slowdown in revenue growth.
A report by the Parliamentary Budget Office (PBO) shows that by June last year, public debt stood at Sh7.71 trillion, is projected to hit Sh8.8 trillion in June this year and Sh9.8 trillion a year later.
The amount leaves only four per cent, about Sh1.29 trillion to finance the fiscal deficit for the year 2020/21, which is Sh929.7 billion and between Sh775.8 billion and Sh940 billion for the financial year 2022/23.
PBO cautions that given the prevailing debt accumulation and debt service trends, the current debt ceiling of Sh9 trillion enacted by parliament in November 2018 cannot hold.
“Therefore, it may be subject for review in order to accommodate any further borrowing to fund expenditure requirements,” reads the PBO report- Budget Options for 2022/23 and the medium term.
PBO is a technical body within parliament buildings with the mandate to advise the House and its committees on fiscal matters.
Debt service, a first charge on the consolidated expense is, therefore, projected to account for over 60 per cent of ordinary revenue thereby reducing resources available for other critical expenditures.
The PBO document warns that the public debt stock is likely to increase even further in the coming years as the country grapples with limited resources to finance its ever-growing operations amid corruption at the national and the county levels.
To limit overreliance on borrowing, PBO notes that a greater level of fiscal discipline and commitment to efficient implementation of the budget by the two levels of governments, could lead to higher economic growth thereby increasing revenue and reducing the need to borrow.
The spiraling debt comes as it emerged that the government plans to increase the debt ceiling to Sh12 trillion from the current level early this year.
Kenya’s debt to Gross Domestic Product ratio was estimated at 68 per cent as at June 2021 and it is projected to rise to 70 per cent by the end of 2022/23.
While fiscal-targeted consolidation takes place, achieving rapid economic growth rate will be critical.
“The debt to GDP ratio should not be allowed to reach levels that would affect the economic growth rate negatively as this would lengthen the fiscal consolidation period,” the PBO document states.
The PBO document further challenges the government that focus should be given to sectors that are critical to revenue generation.
They include manufacturing, finance and insurance, information and communication, as “this will accelerate the fiscal consolidation process.”
Persistent rise in fiscal deficit has largely escalated the accumulation of public debt. Previously, the overall fiscal deficit persisted due to infrastructure-related expenditure pressures. In the current financial year, the government projects to borrow at least Sh1.1 trillion to finance the Sh3.6 trillion budget read in June 2021.
Currently, domestic debt service accounts for 74 per cent of total public debt service even though it accounts for only 42 per cent of the total debt stock.
External debt, about 52 per cent of total debt stock, accounts for only 26 per cent of debt service.
This implies that domestic debt restructuring will have a greater impact on alleviating the debt-service burden on the country.
Already the debt service is projected to reach Sh1.36 trillion by the end of 2022/23, a 16 per cent increase, and will account for up to 10 per cent of the GDP.
At this level, debt service will have outpaced the development expenditure share of GDP by five per cent and will be rising faster than recurrent expenditure share of GDP estimated to decline to 10.8 per cent in the 2022/23 financial year.
