State’s debt appetite in focus as payments take up half of taxes
Passers-by at the National Treasury’s head office in Nairobi. PHOTO | FILE
What you need to know:
In the nine months to March, Kenya spent Sh317 billion in the period to service its debts against tax collections of Sh775 billion.
The country's debt is growing at a faster pace than tax revenues resulting in a scenario where an increasing proportion of taxes will be used to settle the borrowed amounts.
Kenya spent nearly half of all tax revenues on debt repayment in the nine months to March, highlighting the negative effect of increased borrowing on the economy.
Data from the Treasury shows that the country spent Sh317 billion in the period to service its debts against tax collections of Sh775 billion.
The government was last year forced to put a number of flagship projects on hold amidst the high debt repayment schedule and below target tax revenues as the effects of heavy borrowing start to manifest.
“Increasing public borrowing may result in undesirable fiscal consequences such as high interest rates, inflation and overburdening future generations,” Agnes Odhiambo, the Controller of Budget warned late last year.
Kenya’s debt is growing at a faster pace than tax revenues resulting in a scenario where an increasing proportion of taxes will be used to settle the borrowed amounts.
By end of December, Kenya’s debt stood at Sh3.16 trillion. The debt has jumped 67 per cent over the last three years from Sh1.89 billion in June 2013.
Between June 2013 and June 2015, taxes collected by Kenya Revenue Authority grew from Sh795 billion to Sh1.07 trillion, a 40 per cent jump.
Kenya has recently ramped up borrowing with the debt supposed to be channelled to development projects including a modern railway, new roads, dams and electricity plants.
But an expanding recurrent budget, mostly consisting of salaries for civil servants has seen the money diverted from projects to pay for items and services that have no economical return.
The Treasury data shows that spending on projects has been lagging behind with less than half of what had been budgeted being spent in the nine months.
The government had planned to spend Sh389 billion on projects but only Sh174 billion of this had been used.
The huge growth in debt over the last three years has caused some disquiet in the country with multilateral lenders World Bank and the International Monetary Fund urging Jubilee government to go slow on borrowing.
Among the concerns expressed by the lenders is Kenya’s taking in of more non-concessional lending which attracts high interest rates especially from China.
The World Bank says China’s loans to Kenya have been growing by 54 per cent a year between 2010 and 2014 with some of the credit having high interest rates.
Kenya is looking to take up more debt, including a Sh60 billion ($600 million) loan from China to help fund a 2015/16 budget deficit, piling more pressure on the taxpayer.
The Kenya Revenue Authority (KRA) missed its nine-month target of Sh911.6 billion by a significant Sh69 billion due to an underperformance in the corporate sector highlighting the continued growth in borrowing as revenues underperform.
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Note: The results are not exact but very close to the actual.
