Public debt in the local market grew 5.8 percent during the fiscal year that ended last month with new borrowings hitting Sh577 billion, up from Sh545.2 billion acquired in a similar period the previous year.
Fresh data from the Central Bank of Kenya (CBK) shows the new borrowing took the country’s domestic debt stock to Sh5.41 trillion as at the end of June 2024, up from Sh4.832 trillion at the end of June last year.
The Treasury had set the domestic borrowing target at Sh851.8 billion as of May, including Sh471.3 billion in net domestic borrowing and Sh380.5 billion in payments or redemptions.
The projection on new domestic borrowing has, however, been a moving target with the Treasury having first revised the target to Sh415.3 billion down from the original Sh587.4 billion projections in its September Budget Review and Outlook Paper (BROP).
The second 2023/24 supplementary estimates meanwhile set the target for net domestic borrowing further down to Sh407.0 billion.
The government was at the time seeking to implement an elaborate scheme to slash fresh debt by Sh273.7 billion.
The CBK, which is the government’s fiscal agent, had said that reduced borrowing in the domestic market would help ease pressures on interest rates.
The cut in local borrowing was further expected to help raise dollar inflows and slow down the weakening of the shilling due to a gaping mismatch between supply and demand for the international reserve currency.
In December, the Treasury again reviewed the domestic borrowing target to Sh471.4 billion on the back of lower-than-projected tax collections.
The heightened borrowing came despite the implementation of new and aggressive taxation measures contained in the Finance Act, 2023 which sought to narrow the country’s fiscal deficit during President Ruto’s first full financial year in office.
During the full year ended June, the Kenya Revenue Authority (KRA) collected Sh2.22 trillion in ordinary revenue marking a 9.5 percent jump from the Sh2.03 trillion netted in the fiscal year ended June 2023.
Despite the growth in both tax collections and net borrowings, the taxman missed its target by Sh267 billion on the back of reduced corporate profits and job cuts in a period when businesses were held down by the depreciation of the local currency as well as high energy prices.
Analysts have blamed the International Monetary Fund (IMF) for setting unrealistic tax targets for Kenya as part of its ongoing budgetary support programme.
Among the taxation shifts that the Dr Ruto-led regime oversaw during its first full fiscal year in office included enforcing the 16 percent value-added tax (VAT) on fuel, a reform that his predecessor Uhuru Kenyatta failed to fully implement in a decade.
Others included the introduction of 1.5 percent housing levy, increment of excise on mobile money transfers from 12 percent to 15 percent, introduction of a 15 percent excise duty on advertisements on various media platforms as well as introduction of new tax bands at 32.5 percent and 35 percent on monthly employment income above Sh500,000 and Sh800,000 respectively.
In an unprecedented move, Dr Ruto was last month forced to withdraw fresh taxation proposals contained in the Finance Bill 2024 in their entirety after rising public rage that threatened to shut down the economy.
