President Ruto’s Sh50 billion weekly debt headache
National Treasury and Economic Planning Cabinet Secretary Njuguna Ndung’u when he appeared before members of the Senate Committee on County Public Investments and Special Funds at the Kenyatta International Convention Centre in Nairobi on April 24, 2023.
President William Ruto’s administration is reeling under a huge public debt burden, with loans maturing at a rate of Sh50 billion every week.
The situation is compounded by a revenue collection shortfall that has further pushed the government to the brink.
The resultant cash crunch has occasioned delays in the payment of civil servants' salaries and disbursement of equitable share of national revenue to the 47 county governments.
Appearing before the Senate County Public Investment and Special Funds committee, National Treasury and Economic Planning Cabinet Secretary Njuguna Ndung’u said in March alone, the total maturities hit Sh147 billion.
Prof Ndung’u told the committee led by Vihiga Senator Godfrey Osotsi that the debt obligations for the month of March were largely driven by interest payments to domestic creditors. The CS explained that most of the debts falling due at the same time are domestic.
He added that the government has to service these domestic debts to stimulate the local economy.
He said the economy is facing what he termed a perfect storm, with missed growth targets worsening revenue shortfalls and the prevailing tough times.
The Treasury boss further explained that public investments, which are the key drivers of growth, have slowed down.
Data from the Treasury shows that the debt-servicing budget is Sh1.36 trillion, down from the Sh1.39 trillion budget that had been set aside for servicing debts by former President Uhuru Kenyatta’s administration.
“The lumped-up maturities without corresponding exchequer receipts have led to the financial constraints that have hit the government,” said Mr Ndung’u.
In January, the government spent Sh123.53 on debt obligations while in February it forked out Sh66.7 billion.
Explaining the severity of the problem, the Treasury CS said with the debt-servicing obligations falling due at the same time, revenue collection cannot match the obligations.
This is made worse by other obligations, including recurrent expenditure, with the monthly wage bill averaging Sh43.9 billion.
Debt ceiling adjustment
In June last year, Parliament voted to raise the public debt ceiling to Sh10 trillion as a stop-gap measure to allow the government to borrow Sh846 billion to plug the budget deficit for the fiscal year ending June 2023.
The debt ceiling adjustment was meant to accommodate the financial year 2022/23 budget without raising the debt cap.
Kiambu Senator Karungo Thang’wa asked if there was room to renegotiate the terms of the debts or to stagger repayments.
Prof Ndung’u said the government had for two weeks been exploring different avenues of renegotiating both the bilateral and multilateral debts.
“We are not just sleeping waiting for the rains to come and beat us. We have been constantly seeking innovative solutions together with the economic advisory council, it is only that time has not been on our side,” he said.
Appearing before the same committee, Kenya Revenue Authority (KRA) Legal Services Commissioner Paul Matuku, representing the acting Commissioner-General, said the taxman had collected Sh1.45 trillion as at end of March, against a target of approximately Sh1.6 trillion, translating to a performance of 93.1 per cent.
This, he explained, left the KRA with a deficit of Sh107 billion, despite revenue collection having grown by 8.3 per cent or Sh114 billion compared to a similar period in the financial year ended June 30, 2022.
He added that late disbursement of funds to counties had hit the KRA hard due to corresponding delays in remitting pay-as-you-earn tax, value-added tax and withholding tax.
Further, he revealed that Sh277 billion is being held in tax tribunals, adding that they are engaging with concerned parties on how to have the money released.
The CS further noted that Kenya’s targeted expenditure deficit stands at Sh307 billion, way above the Sh107 billion revenue shortfall.
He said government ministries, departments and agencies are owed more than Sh311 billion while more than Sh94 billion is owed to the county governments in terms of February, March and April equitable-share allocations.
The Treasury CS said the government is working towards introducing a raft of measures to ensure revenue targets are met.
He said they are working on a tax regime that will not distort the market.
“We want to make sure taxation does not look like a punishment but an incentive so that many people do not find themselves wanting to evade paying taxes,” said the CS.
“We must review our social contract as you cannot kill the goose that lays the golden egg unless you don’t want the egg,” he added.
