45 per cent of Kenya's tax revenue to be used for debt repayments

Kenya will use Sh4.50 for every Sh10 collected as taxes in the year to June for debt payments, underlining the burden of mounting government borrowing.

The Treasury data show that it will pay Sh658.2 billion for loans in the current financial year, making it the single-largest expenditure and 45 per cent of the Sh1.44 trillion that the Kenya Revenue Authority (KRA) is expected to collect in taxes in the period to June.

The debt payment is Sh223 billion more than the Sh435.7 billion that taxpayers paid in the year ended June in what is linked to the Treasury’s rising appetite for expensive short-term loans.

Kenya has ramped up spending in recent years to build a modern railway, new roads and electricity plants, driving up borrowing to plug the budget deficit.

The public debt stood at Sh4.48 trillion in September, up from Sh3.5 trillion in March 2015 and Sh2.1 trillion in November 2013, a growth that has raised concerns that the ballooning loans risk hurting the economy on huge debt repayment burden.

READ: Experts warn of Africa’s new debt crisis

Large taxes

Barclays Africa Group chief economist Jeff Gable warned Tuesday that unless the private sector is involved in infrastructure investment debt repayments would continue to take a larger share of the taxes.

He said a majority of African countries spend Sh1 for every Sh3 they collect in revenue on debt obligations, a pointer that Kenya is on the upper side.

“There must be opportunities for private participation that allows the government to use its tax revenue to do something else,” Mr Gable said in Nairobi during the launch of Barclays Africa 2017-18 Macro-Economic Report.

“But there is nothing that makes Kenya special in that environment. This is a broader issue for a continent for its unending appetite for infrastructure development.”

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Development spending

The debt repayment will be nearly double Kenya’s combined development spend of Sh351 billion in the current year and more than eight times that of infrastructure like roads whose spend is expected at Sh76.89 billion.

It is more than double the Sh306 billion allocated to the 47 counties and Sh14 billion for revamping infrastructure in educational institutions.

A number of local and international agencies including the IMF and World Bank have expressed concern over Kenya’s rising appetite for borrowing to finance state expenditure.