President William Ruto’s administration is targeting borrowing Sh3.6 trillion in his first five-year term, upending his plan to go slow on debt.
The Sh3.6 trillion is equivalent to 89 percent of the record Sh4.1 trillion that his predecessor, Uhuru Kenyatta, borrowed in the five years to June 2022.
At Sh3.6 trillion, the borrowing is more than the Sh2.7 trillion that Mr Kenyatta chalked up in his first term and Sh1 trillion that the late Mwai Kibaki borrowed in his last five-year term.
Analysts had expected that the Ruto administration would cut fresh borrowing by a larger margin after committing to ramp up its tax collections over the next five years.
But the rise in spending under the so-called Bottom-Up economic plan, which proposes to channel resources to sectors that can have a mass impact in creating jobs and wealth, has prevented deeper cuts on the country’s borrowing.
Dr Ruto’s budget will top Sh5.1 trillion in the fiscal year ending June 2027 from Mr Kenyatta’s last annual expenditure of Sh3.0 trillion.
The additional expenses are expected to wipe out the additional taxes as the government sets a target to increase Kenya Revenue Authority (KRA) collections to Sh3.78 trillion in June 2027 from the current Sh2.19 trillion.
The Treasury had targeted borrowing Sh862 billion in the current fiscal year that runs until the end of June, but the Ruto administration has since cut the target to Sh849 billion and Sh695 billion in the next fiscal year.
This is in line with the Treasury’s call in a report for Kenya to “move from dependence on debt to dependence on revenues that are raised by taxpayers”.
Kenya is at high risk of debt distress, according to the International Monetary Fund (IMF), and had a ratio of debt-to-gross domestic product of 62.3 percent as of October.
The plan to ease the nation’s debt burden comes as several emerging and frontier-market countries seek to review the terms of their obligations with lenders.
This month, Ghana became the fourth country to seek the restructuring of its loans under the Group of 20 Common Framework.
The urgency for fiscal consolidation in Kenya was renewed on December 14 when Fitch Ratings downgraded the country’s credit rating to B from B+ because its high debt and increase in borrowing costs limit access to global markets.
Kenya currently spends more than half of its tax revenue on servicing liabilities, and the IMF reckons the position places the country at a high risk of debt distress.
Treasury data show that Kenya will cut borrowing for the next three financial years, including the Sh690m billion for the year to June 2024.
The borrowing is set to surge as Kenya heads to the 2027 General Election. It will increase to Sh844 billion in the year to June 2027, matching levels witnessed under the Uhuru Kenyatta administration.
Kenya’s debt increased more than four-fold to Sh8.58 trillion ($71 billion) under Mr Kenyatta, who invested heavily in new rail links and other infrastructure.
The public debt rose to Sh8.9 trillion as of November, according to central bank data. Like other emerging economies, Kenya found it almost impossible to raise funds from international bond markets in 2022 due to a surge in yields.
In June it was forced to cancel the planned issuance of a Eurobond and is seeking alternative sources of funding.
In February last year, Fitch said rising government debt levels and global interest rates were increasing the risk of credit rating downgrades in as many as 10 African countries, with Kenya, Ghana, Lesotho, Namibia, Rwanda and Uganda most at threat.
The slower pace of debt accumulation is expected to see the rate of debt to nominal GDP slide to 54 percent of GDP from 64.9 percent in the current fiscal year to June.
In turn, the country’s fiscal deficit inclusive of grants is expected to ease to 3.6 percent of GDP from 5.8 percent over the same period.
The government will be betting on raising additional tax revenues and spending rationalisation to contain growth in the country’s debt levels over the medium term.
“The fiscal policy stance over the medium term aims at supporting the economic recovery agenda of the government through a growth-friendly fiscal consolidation plan designed to slow the annual growth in public debt and implementing an effective liability management strategy without compromising service delivery to citizens,” the Treasury stated.
“This is expected to boost the country’s debt sustainability position and ensure that Kenya’s development agenda honours the principle of inter-generational equity.”
