Analysis shows State spending debt on salaries

Government must have used part of its Sh2.7 trillion borrowing between July 2013 and June 2018 on salary payment, an analysis by ICEA Lion Asset Management has shown.

The investment firm with a portfolio of Sh138 billion assets, says recurrent expenditure has surged over the last five years while tax revenues lagged, forcing government to turn to debt to finance recurrent budget.

“Increase in debt has been driven more by recurrent expenditure than development spending. In fact, development spending in 2018 was the lowest in five years,” said ICEA head of research Judd Murigi.

Speaking during second quarter investor pulse presser in Nairobi, ICEA Lion Asset Management CEO Einstein Kihanda said that economic growth will not be sustained unless government rebalances spending patterns towards development.

“Growth friendly consolidation needs to focus on cutting recurrent expenditure but maintain development spending because that is what will drive growth,” said Mr Kihanda.

ICEA analysis shows that in five years to June 2018, Kenya’s debt has risen by Sh2.7 trillion, with external debt rising by Sh1.6 trillion and domestic debt growing by Sh1.1 trillion.

This pushed total government expenditure to Sh9 trillion against revenue collections of Sh6.2 trillion.

Recurrent expenditure comprised almost 60 per cent of the total spending while development expenditure accounted for 25 per cent, with county allocations constituting 15 per cent, ICEA breakdown shows.

Considering the bulk of county government allocation is spent on recurrent expenses, Mr Murigi said, consumption expenditure may have hit over 70 per cent of national government spending.

General manager for business development Elizabeth Irungu said for as long as many projects are started but not followed through to completion or money is getting lost, the impact on the economy will be minimal.

Chief investment officer Barack Obatsa said falling tax revenue collections may pile pressure on government in meeting repayments given the cuts in development spending.

“While GDP has appeared to perform, you don’t necessarily pay your debt using GDP. It is just like a company generating billions of shillings in revenues but posting losses. The bottom line is that loans are paid using taxes,” he said.