Economy

Debt eats 58pc of taxes in 4 months

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Treasury Cabinet Secretary Ukur Yatani. FILE PHOTO | NMG

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Summary

  • Debt servicing costs amounted to Sh246.29 billion in the July-October 2020 in an environment of falling tax receipts.
  • The slump in tax receipts was worsened by tax reliefs offered to cushion businesses and workers from the economic shocks of the pandemic.
  • The pressure on revenues and debt service obligations has seen Nairobi apply for fresh loans from International Monetary Fund (IMF) and the World Bank Group.

Debt repayments gobbled up nearly 58 percent of taxes in four months through October ahead of the Treasury’s move to apply for additional cheaper World Bank and IMF funding and consider a debt relief offer Nairobi had earlier rejected.

Treasury data showed Friday that debt servicing costs amounted to Sh246.29 billion in the July-October 2020 in an environment of falling tax receipts, which dipped Sh71.94 billion to Sh426.38 billion compared with a year earlier.

This means for every Sh10 collected by the Kenya Revenue Authority (KRA), Sh6 went into servicing debts procured from local and foreign creditors.

Covid-19 restrictions and shutdowns from late March disrupted economic activity, hitting corporate sales and prompting job cuts and salary reductions that in turn hammered tax revenue.

The slump in tax receipts was worsened by tax reliefs offered by the Treasury Cabinet Secretary Ukur Yatani from April to cushion businesses and workers from the economic shocks of the pandemic.

Treasury data showed KRA missed target from payroll and consumption taxes by Sh62.95 billion in three months through September to Sh225.14 billion.

Corporation taxes, however, surpassed the goal by Sh3.05 billion to Sh79.69 billion.

Despite falling 10.82 percent, or Sh29.88 billion, year-on-year in the review period, debt service costs remained the second single largest expenditure from the exchequer after recurrent expenditures such as salaries, allowances and government administrative expenses.

The recurrent expenses in the four-month period fell a marginal 3.51 percent to Sh295.75 billion.

The debt financing costs were also Sh75.96 billion, or 44.6 percent, more than cumulative Sh170.33 billion that was channeled to development projects (Sh91.89 billion) and the 47 counties (Sh78.44 billion) in the four-month period.

The pressure on revenues and debt service obligations has seen Nairobi apply for fresh loans from International Monetary Fund (IMF) and the World Bank Group.

Between April and September, the stock of debt from the World Bank and the IMF rose $1.66 billion (Sh181.58 billion) and $686.44 million (Sh75.03 billion), signaling fresh borrowing in the period.