Treasury on the spot over Kenya’s rising long-term debt load

Parliament has put the Treasury on the spot over its increased use of long-term debt, arguing that ignoring short-term loans was putting a heavy burden on future generations.

The parliamentary Budget and Appropriation Committee (BAC) says the Treasury has routinely ignored borrowing guidelines amid increased appetite for external public debts.

The committee is pushing for a balanced mix of short and long-term loans to enable equitable sharing of debt burden between current and future generations.

“Currently, the burden is disproportionately placed on future generations,” the committee chaired by Mutava Musyimi says in its report. “The committee is concerned that its far-reaching recommendations on the budget policy statement are rarely adhered to during the finalisation of budget.”

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Loans with repayment period of less than five years are categorised as short- term while those above 10 years are long-term.

Treasury’s preference for long-term debt is informed by the need to keep the regular loan repayments low as Kenya struggles with piling public debt.

The country’s annual debt repayment is set to hit Sh618.5 billion next year, which will see the Treasury spend an estimated Sh40 out of every Sh100 collected from taxpayers on servicing the ballooning loans.

The repayment bill represents a 38.5 per cent jump from Sh446.4 billion spent on public debt this year compared to a projected 12 per cent growth in tax collection, which is a key indicator of the country’s ability to repay.

Figures contained in the Division of Revenue Bill show that the State will spend Sh172 billion more to service loans in the financial year beginning July 2017, exerting more pressure on taxpayers who will also finance the General Election.

The government has accelerated borrowing in the past four years to build a modern railway, new roads and electricity plants.

Public debt hit Sh3.7 trillion in September, which at an estimated population of 43 million Kenyans, translates to an average burden of Sh86,000 on every Kenyan alive if the loans were all to be settled today.

Parliamentary Budget Office, a think tank that advises the BAC budget policy, however, released a report warning that public debt could be much higher than officially stated.