Debt repayment eats up 67.5pc of taxes in first quarter


The National Treasury building in Nairobi. FILE PHOTO | NMG

Kenya spent an equivalent of two-thirds of tax revenues to service mounting obligations to domestic and external creditors in the first quarter of this financial year, official data shows.

Public debt repayment costs hit a record Sh347.22 billion for the three months ended September, according to exchequer statistics published by Treasury Cabinet Secretary Njuguna Ndung’u last Friday.

That represented a 46.53 percent jump over Sh236.96 billion in a similar period a year ago.

The amount spent on servicing domestic and foreign debt was an equivalent of 67.52 percent of Sh514.26 billion tax collections, higher than 50.94 percent of Sh465.20 billion tax receipts in the corresponding period of last fiscal year.

Debt obligations are fast-rising this financial year ending June 2024 largely due to the maturing semi-concessional and commercial borrowing contracted by the administration of retired President Uhuru Kenyatta to build roads, bridges, power plants, and a modern railway line.

Kenya’s debt binge is underlined by Eurobond offerings, a package of Chinese loans and syndicated commercial loans over the years that are now squeezing its finances as repayments fall due.

The Treasury has, for instance, budgeted for Sh1.75 trillion towards servicing Kenya’s debt this fiscal year compared with Sh1.16 trillion in the year ended last June.

“The debt sustainability analysis shows that Kenya’s public debt remains sustainable as a medium performer in terms of debt carrying capacity. However, there is a high risk of debt distress as a result of global shocks leading to a slowdown of economic growth,” Treasury officials wrote in the draft 2023 Budget Review and Outlook Paper last month.

Debt repayments were the single largest government expenditure in the July-September 2023 period, dwarfing the Sh329.21 billion the national government spent on pay and maintaining offices as well as disbursements to the 47 counties.

This is after total recurrent expenditure for the national government fell a marginal 2.90 percent to Sh268.10 billion partly on account of reduced spend on elections as was the case last year while releases to counties dropped 13.12 percent year-on-year to Sh61.11 billion.

The increased expenditure on debt was partly due to obligations to China where Kenya services the debt in July and January every financial year.

Kenya’s growing debt burden this fiscal year is underlined by the bullet repayment of $2 billion [Sh301.51 billion as per budget books] towards maturing Eurobond in June 2024 and estimated Sh112.39 billion due to Chinese, largely Exim Bank of China.

“To reduce debt vulnerabilities, the Government has committed to a fiscal consolidation program and optimising the financing mix in favour of concessional borrowing to finance capital investments,” the Treasury wrote in the outlook paper. “Additionally, a steady and strong inflow of remittances and a favourable outlook for exports will play a major role in supporting external debt sustainability.”

The headache of servicing external debt has been heightened by aggressive interest rate hikes by central banks in rich countries in the battle against inflation amid the sustained weakening of the shilling. The Kenyan currency has, for example, shed about a fifth of its value against the US dollar in the past year.

The Central Bank of Kenya says the government has run out of headroom for spending cuts, meaning the success of the country’s fiscal consolidation largely hinges on the increased taxes.

“[On new taxes], we are only concerned about the impact of the high debt levels that we have. Sometimes, we think that there is a lot to cut on expenditure but you will be surprised to know… there is very little room for sharp expenditure cuts,” CBK Governor Kamau Thugge said in July.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.