Kenya’s pension spending to rise by Sh12.7 billion

Kenya’s pension expenditure will expand by Sh12.7 billion in the financial year starting July due to an increase of gratuity to civil servants who are expected to leave the public service.

A new report by Parliament shows that pension expenditure for the 2016/17 financial year is expected to rise to Sh55.7 billion up from Sh43 billion in the previous year.

“This is on account of increase of gratuity to civil servants that increased by Sh12.7 billion (117 per cent) from Sh10.9 billion to Sh23.6 billion in the new financial year,” the report says.

The Parliamentary Budget Office (PBO) report on the other hand shows that salaries and allowances payable to public servants will decrease by Sh500 million on account of the winding down of the Commission for Implementation of the Constitution (CIC).

The BPO, which comprises economists and fiscal experts, said the winding up of CIC might have contributed to the increase in pension.

“Salaries and allowances are expected to decrease from Sh4.4 billion in the 2015/16 financial year to Sh3.96 billion on account of the winding down of the Commission for the Implementation of the Constitution in 2015, and might have contributed to the increase in pension indicated above,” says the report put together by economists and fiscal analysts who advised MPs on the 2016/17 budget estimates.

The CIC’s five-year term, then chaired by Mr Charles Nyachae, came to an end last December.

The CIC was charged with ensuring implementation of the 2010 Constitution.

The PBO report said the Treasury attributed the reduction on salaries and allowances in the coming budget to winding down of the committee of experts on constitutional review that ended its existence forty-five days after the proclamation of the new Constitution in 2010.

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The PBO, headed by Ms Phylis Makau, also notes that the country’s guaranteed debt will rise by Sh72.3 million. “The country expects to incur Sh1.017 billion up from Sh944.7 million in 2015/16 relating to guaranteed debt to institutions that have defaulted on their loan repayments.

“However, the total guaranteed debt expenditure is expected to fall in subsequent years owing to fall in interest payments on guarantees,” the PBO says.

The budget office warned that the level of debt in Kenya is approaching unsustainable levels.

“Already the ratio of debt service to revenue has reached its limit of 30 percent and is expected to bypass its limit in the 2017 by 4.7 per cent on account of debt redemptions and interest rate costs that are expected to rise substantially in the financial year 2017/18,” the experts said in the report dubbed, “Unpacking the Budget Estimates, 2016/17.”

According to the proposed budget, the government is seeking to borrow about Sh689.1 billion to finance budget deficit in the 2016/17 financial year.

The Treasury projects the deficit to decrease to Sh522.2 billion in 2017/19 and Sh481.3 billion in 2018/19.

“This is to bridge the budget deficit which is forecasted to grow to 9.3 per cent, 6.4 per cent, and 5.3 percent respectively in financial year 2016/17, 2017/18 and 2018/19,” the report says.

The Budget Office said the increase in budget deficit shows a lack of commitment by the Treasury to debt sustainability in the long run.

“This is a worrisome trend since according to the Constitution, Article 201 (c),  the government is obliged to maintain debt levels sustainable for future generations also,” the House budget and economic experts said.