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Economy

Public debt costs take up more than half of taxes

National treasury building
National treasury building. FILE PHOTO | NMG 

Cash spent on servicing Kenya’s ballooning public debt surged 75 per cent in nine months to March, underlining the burden debt repayments is having on taxpayers.

Debt repayment costs hit Sh538.20 billion in the nine months from Sh273.64 billion in a similar period a year earlier, Treasury data shows

That means that Treasury spent an equivalent of Sh1.94 billion daily or Sh59.8 billion monthly on debt repayments, up from Sh1.13 billion daily and Sh34.36 billion monthly in the year ended June 2018.

Rising debt servicing costs amid below-target growth in tax collection have seen the allocation of cash for projects such as building roads, power lines, water and sewerage network remain depressed.

Debt repayments for the period to March was nearly thrice what Kenya spent of development at Sh197.16 billion and more than double the allocation to counties in the nine months at Sh205.6 billion.

Statistics show the Treasury spent an equivalent of Sh52.74 of every Sh100 collected from taxpayers on servicing the debt in the nine-month period, higher than Sh32.92 a year earlier and Sh31.50 in the same period of the 2016-17 financial year.

This is after tax collections in the review period rose by a modest 8.62 percent — against average inflation of 4.9 percent — to Sh1.02 trillion compared with nearly Sh939.37 billion in the same period the year before.

The Treasury has maintained borrowed cash has been spent on building roads, bridges, power plants and the standard gauge railway, projects which are in turn expected to spur economic activities, helping grow tax revenue.

“The cost of these projects (funded through borrowed cash) will now be the centrepiece of what to look at (in future deals),” Stanbic Bank regional economist Jibran Qureishi told the Business Daily in a recent interview.

There should be a thorough cost-benefit analysis of all major projects funded through debt aimed at ensuring return on investment is felt short-to-medium term so that taxpayers do not feel they are overpaying for the projects, he added.

“This is because, ultimately, the longer the return on investments takes to materialise — and if exports have not picked up — then the government has to start increasing taxes to service that debt,” Mr Qureishi said.

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