Kenya’s debt burden crossed the Sh8.61 trillion mark for the first time in July, new disclosures by the National Treasury showed.
This even as the government kick-started the race to source loans to fund the budget for the current financial year.
The country’s external debt increased by Sh9.04 billion to Sh4.299 trillion in one month between June and July, driven by new disbursements to the exchequer and depreciation of the local currency against major world currencies.
Treasury repaid Sh25.75 billion of China’s debt in July, Sh530 million to Spain, and Sh891 million to France.
It also received Sh27.82 billion from the International Monetary Fund, Sh3.47 billion from the Asian Development Fund and Sh4.52 billion from Japan.
The government also borrowed Sh103.83 billion locally through Treasury bills and bonds during the month.
“The total nominal public and publicly guaranteed debt stock as at the end of July 2022 was Sh8.61 trillion (68.1 per cent of GDP). Domestic debt stock was Sh4.31 trillion (34.1 per cent of GDP) while the external debt stock was Sh4.299 trillion (34 per cent of GDP),” Treasury revealed.
The country’s Sh3.3 trillion 2022/23 budget has a financing deficit of Sh862.5 billion, which the Treasury plans to plug through local borrowing of Sh581.7 billion and external borrowing of Sh280.7 billion.
This comes as the Parliamentary Budget Office (PBO) indicates that Kenya’s debt stock could hit Sh9.8 trillion by June next year.
This will leave borrowing legroom of just Sh200 billion for the 2023/24 budget after the National Assembly capped the debt ceiling at Sh10 trillion.
The government has increasingly come under pressure over its utilisation of borrowed funds, especially by using them on recurrent expenditure items such as payment of salaries in breach of the law.
Records show that the government spent Sh162.2 billion of borrowed money on recurrent expenditure in the 2021/22 fiscal year as the public wage bill sharply rises with employment in the public sector increasing by 923,100 people in 2021.
Section 15(2)(c) of the Public Finance Management Act, 2012 requires the government to use borrowed funds only to finance development projects—a provision meant to guarantee a return on investment to enable the repayment of the debt.
The government borrowed Sh916.6 billion in the financial year 2021/22, which was former President Uhuru Kenyatta ’s last full fiscal year in office.
It however spent only 82.3 per cent (Sh754.2 billion) of the borrowed funds on development, according to data from Treasury, and 17.7 per cent (Sh162.2 billion) on recurrent expenditure.
The state’s recurrent expenditure has been growing rapidly in recent years due to the accumulation of debt repayments, civil servants’ salaries and wages as well as a growing pension burden.
The total recurrent spending grew 17 per cent from Sh1.82 trillion in the financial year 2020/21 to Sh2.13 trillion in 2021/22.
“The recurrent spending was occasioned by spending interventions to cushion the poor and vulnerable members of society as well as to contain the spread of Covid-19 and acquisition of Covid-19 vaccines,” said Treasury.
President William Ruto has promised to step up local revenue collection to cut the budget deficit and reduce reliance on borrowing as part of his plans to curb debt accumulation.
In the Sh3.3 trillion budget for the 2021/22 financial year, the government committed Sh1.1 trillion in debt servicing.
However, PBO says that debt servicing is projected to hit Sh1.36 trillion by the end of the 2022/23 financial year and will account for up to 10 per cent of the GDP by the end of the medium term.
“At this level, it will have outpaced the development expenditure share of GDP, which is 5 per cent, and will be rising faster than recurrent expenditure share of GDP, estimated to decline to 10.8 per cent in the current financial year,” the PBO document reads.
