Debt costs eat up 63.5pc of taxes in two monthsTuesday September 20 2022
Kenya spent 63.5 percent of tax collections in the first two months of the current financial year to repay its creditors, pointing to an elevated risk of debt distress.
Debt servicing costs amounted to nearly Sh177.95 billion in July and August against a record Sh280.23 billion in tax receipts, the latest Treasury data shows.
That indicates for every Sh100 netted by the Kenya Revenue Authority (KRA) in the period, an average of Sh63.50 went into repaying debts procured from local and foreign creditors.
The share of tax receipts gobbled up by debt servicing costs is, however, slightly lower than 65.7 percent in the corresponding months last year, signalling improved collections by the taxman despite uncertainties related to the recently concluded closely-contested presidential poll.
KRA collected Sh149.62 billion in August and Sh130.6 billion in July, a growth of 19.36 percent and 7.19 percent, respectively, over similar months last year.
President William Ruto’s administration faces a bumpy ride in steering Kenya’s public debt on a sustainable trajectory.
Treasury chiefs project debt costs will amount to Sh1.39 trillion this financial year ending June 2023, eating up two-thirds of the Sh2.07 trillion taxes that the KRA targets to collect.
At that level, debt repayments are for the first time projected to surpass the cost of running the national government — including recurrent expenses such as salaries, operation and maintenance costs— which are estimated at Sh1.18 trillion.
Dr Ruto has indicated that he does not prefer renegotiating the terms for the country’s debt portfolio to achieve sustainability and has instead vowed to broaden the tax base to grow revenue.
“As we work together to get our economy out of the mud, I am asking every Kenyan that …each and every one of us must pay their taxes, and I have said I am going to lead from the front, making sure I pay my taxes,” the president said ahead of September 13 inauguration.
“I have already talked to the KRA, they are going to be disciplined…, professional and they will work with every Kenyan.”
Analysts at Parliamentary Budget Office (PBO) – a unit which advises lawmakers on financial and budgetary matters – say public borrowing will be driven more by the need to repay maturing debts than fund infrastructure development.
“Whilst initially the fiscal deficit was prompted by large infrastructure-related expenditures, the increase in debt servicing expenditures alongside critical expenditures (such as implementation of the economic recovery strategy, national election-related expenditures), is expected to play a greater role in the stickiness of the fiscal deficit over the medium term, and determine the pace of debt stock growth,” PBO wrote in an analysis on debt management strategy.