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Kenya’s public debt mountain: Is it sustainable?

DEBT (2)

Summary

  • As Kenya’s public debt mountain continues to grow, debt repayment is also rising, reducing funds that are meant to improve service delivery to citizens especially at the county level.
  • Civil society continue to raise concerns about the country’s enormous public debt obligations, with an estimate of 904.7 billion Kenyan shillings falling due this financial year. 
  • Government is borrowing to repay loans.

Kenya’s public debt burden is unfathomably huge, and currently stands at seven trillion Kenya shillings. The outbreak of Covid-19 in the country has seen the government borrow more to support its response to the health pandemic.  

The rate at which the Kenyan government is accumulating loans is alarming. According to the 2020 Budget Review and Outlook Paper, Kenya plans to add about one trillion Kenya shillings to its public debt mountain in the 21/22 financial year to plug the widening budget hole due to the negative impacts of the Covid-19 pandemic. 

Kenya’s public debt began to swell at an alarming rate from the year 2013 due to increasing government spending plans, forcing it to take loans to support the budget. 

The current administration has been on the spotlight over its high borrowing, but its officials defend this by comparing Kenya with other countries around the world whose public debt exceed their economic output – such as Japan whose public debt to gross domestic product ratio is estimated to be 240 per cent.  

However, it is worth noting that Japan’s economy overshadows that of Kenya. 

As Kenya’s public debt mountain continues to grow, debt repayment is also rising, reducing funds that are meant to improve service delivery to citizens especially at the county level.

Civil society continue to raise concerns about the country’s enormous public debt obligations, with an estimate of 904.7 billion Kenyan shillings falling due this financial year. 

Government is borrowing to repay loans. According to the National Treasury Statement on borrowing and public debt management dated December 2020, the government contracted new external loans amounting to KShs1.87 trillion between February 2017 to August 2020, “to finance capital expenditures and refinance public debt obligations due.” 

This is concerning because when a country borrows to repay loans, there is no generation of new wealth and the country may not be able to repay its loans in future.

The government has no option but to cut its spending to reduce Kenya’s burgeoning public debt burden. 

Firstly, the government should significantly reduce the national executive recurrent spending that takes up a huge amount of government expenditure. 

Secondly, the government should curb non-priority expenditure by suspending non-essential and expensive huge infrastructure projects, but exercise caution to avoid diverting expenditure from existing essential public health services and other critical needs to contain the spread of Covid-19. 

Thirdly, the government should merge state corporations and parastatals that consume a lot of funds to cut excessive spending.

In the wake of Covid-19 pandemic, we have seen the emergence of international public debt relief initiatives such as the debt service suspension initiative (DSSI).

The Kenyan Government has not taken up the debt service suspension initiative because pausing its loan repayments may hurt the country because of its public debt mix. The Government will instead undertake negotiations with its bilateral lenders. 

According to Institute of Economic Affairs, Kenya does not lack tools to deal with the public debt problem. 

The problem lies with the institutions responsible for public debt management that are not effectively playing their role. 

There is lack of accountability on the part of the National Treasury and the National Assembly. 

The National Assembly believes that big budgets are a good thing because the bigger the budget the higher the amount of CDF allocation which is 2.5% of the national budget. 

National Treasury takes advantage of this to trap the National Assembly to approve big budgets. Hence, the National Assembly has a perverse interest in the national budget which is an obstacle to them effectively carrying out their oversight role in public debt management. 

There is need to strengthen public finance management specifically on how government raise money through tax revenues and public debt, all the way to how these funds are spent and eventual audit. 

The government can never raise sufficient revenues with huge budget deficits that result to increased borrowing. Citizens should create pressure on Parliament to properly check the National Treasury and the National Treasury to disclose public debt information. 

Parliament must do their job in controlling government spending and budget deficits. 

The Institute for Social Accountability