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Economy

Controller of Budget says Kenya in debt crisis as loans gobble up Sh1.1trn tax

Agnes Odhiambo
Controller of Budget Agnes Odhiambo. FILE PHOTO | NMG 

The Controller of Budget (CoB) has raised the red flag on Kenya's ballooning public debt, warning that the country stands to spend more than Sh61 billion out of every Sh100 billion collected by the taxman for debt repayment this financial year.

The Treasury has projected expenditure of Sh1.1 trillion on debt repayment in the 2019/20 financial year which starts in July, an equivalent of 61 percent of the total projected tax collection of Sh1.87 trillion.

This means the government will have only about Sh700 billion to meet its recurrent and development budget including running of schools, hospitals, the Judiciary and Legislature, build roads, pay the Armed Forces and public servants.

“With Sh1.1 trillion going into servicing debt, it will leave Treasury with less than Sh700 billion for expenditure which is unsustainable. Senate should ask the Exchequer to rethink its fiscal policy to avert a crisis,” said director of research and planning at the Office of the CoB Joshua Musimi in his presentation to the Senate Finance Committee Thursday.

Public debt

Treasury Secretary Henry Rotich has repeatedly said that Kenya’s Sh5.276 trillion public debt, equivalent to 52.7 percent of the gross domestic product (GDP) as at December 2018, is sustainable.

The Treasury says the public debt will only become unsustainable if it hits 70 percent of GDP. In the 2019 medium-term debt management strategy, Mr Rotich however proposed a cutback on foreign loans to ease the repayment fears.

The country’s foreign loans currently stand at Sh2.6 trillion, about a half of the total public debt.

“We feel that the debt is getting into unsustainable levels. However, any time we challenge Treasury about the debt burden they give us indicators to show that we are safe,” said Mr Musimi.

Public debt repayment is normally a first-charge expenditure, which means that the Treasury pays it before it can spend on anything else.

Kenyans are already feeling the burden of public debt repayment, with the Treasury freezing expenditure on development by counties and State agencies as it strives to honour obligations and remain in investors’ good books.

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