Kenya’s debt service costs have now overtaken its combined spending on recurrent and development projects due to the heavy maturing debts, underlining the nightmare that debt expenditure has become for the country.
An analysis of data from the Treasury shows that in the nine months between July 2023 and March, the government used Sh1.24 trillion to service debt compared to Sh1.11 trillion spent on salaries and executing development projects.
The high cost of debt service is a result of maturing obligations both externally and internally with the full-year spend expected to hit a record Sh1.86 trillion end of June. The Treasury revised the budget upwards by Sh240.7 billion in the supplementary budget from the initial Sh1.62 trillion with 35 percent (Sh646 billion) going to internal interest.
The spending on debt repayment is nearly half of the projected Sh3.8 trillion national government budget for the full financial year.
This means that debt service is leaving very little resources for other critical expenditures as well as pushing the country deeper into more debt to run the economy. Over the years, development spending that has the highest multiplier effect on economic growth has taken a back seat as recurrent expenditure and debt service cut a huge share of the budget.
Reducing the fiscal deficit, says the Treasury, is necessary to stem the escalation of debt accumulation and maintain debt at sustainable levels.
“To achieve this, the government is on a fiscal consolidation path consistent with the approved debt anchor which pegs public debt as a percentage of Gross Domestic Product (GDP) in net present value,” Treasury Cabinet Secretary Njuguna Ndung’u says in the 2024 Medium-Term Debt Management Strategy.
In the current financial year, development projects have been awarded a paltry 11 percent of the Sh4.28 trillion budget whereas consolidated fund service accounts for 39 percent and recurrent spending takes 32 percent.
Expenditure on development for the nine months stood at Sh207.5 billion, less than half of the Sh457.2 billion budgeted for projects for the full year. The paltry spending on roads, schools, hospitals and other critical infrastructure hurts the country’s growth prospects by reducing the human capital.
According to experts, development expenditure plays a big role in alleviating poverty by creating jobs and improving people’s economic status.
The State Department of Economic Planning was the biggest spender on development projects at Sh31.3 billion followed by the Crops Department at Sh29.9 billion and roads at Sh26.6 billion.
The poor performers on development over the review period include the Department of Housing with only Sh3 billion spent against a target of Sh14.9 billion.
Medical Services had only spent Sh8.7 billion, representing a quarter of its target for the year put at Sh32.5 billion. The skewed spending deviates from the government’s bottom-up approach that was primarily meant to uplift the livelihoods of low-income earners to the wealthy.
During the last budget reading, Prof Ndung’u promised to give priority to creating jobs and reducing the cost of living to accelerate economic recovery.
Recurrent spending increased by 11 percent over the period to Sh905.6 billion compared to Sh814 billion spent in a similar period a year ago.
According to the Treasury, public debt stock by the end of January stood at Sh11.2 trillion, representing 69.7 percent of the country’s GDP.
The ballooning public debt was also a result of the local currency shedding against major currencies, having hit a record low of 161.36 against the dollar at the end of January before recovering slightly to cut external debt by Sh1.1trn.
The disclosures also revealed that counties had received Sh223.5 billion, a slight increase from the Sh212.7 billion disbursed to the devolved units in a similar period a year ago.
The disbursement represents 58 percent of their entire full-year equitable share allocation of Sh385.4 billion.
Tax collections for the nine months were recorded at Sh1.53 trillion against a full-year target of Sh2.49 trillion, leaving the taxman with an uphill task of collecting close to Sh330 billion per month to meet the full-year target.
The large revenue shortfall comes at a time when the Parliamentary Budget Office (PBO) which advises lawmakers on budget and economic affairs has warned that the tax target will be missed by Sh330 billion.
Total exchequer receipts in the three quarters stood at Sh2.7 trillion resulting in a balance of Sh1.58 trillion.
