Budget 2020/21 estimates reveal that the cost of debt financing will exceed development expenditure as Kenya’s high public debt picks centre-stage. The irony is that public debt when being sourced from multilateral and domestic lenders is meant to fund development expenditure.
In this case, public debt servicing expenses are estimated at Ksh904.7 billion in the coming fiscal year. Interest payments will account for 51 per cent of the total debt service payments amounting to Ksh461.39 billion.
On the other hand, development expenditure (including foreign-financed projects and conditional transfers to county governments) estimated at Ksh584.9 billion.
Public debt servicing expenses constitute the largest portion of the Consolidated Fund Service (CFS) expenses. CFS expenses primarily relate to public debt, pensions, and salaries of constitutional offices and are mandatory expenses.
In FY2020/21, CFS expenditures are estimated to hit Ksh1.04 trillion and will consume approximately 55 per cent of the projected revenues in the upcoming financial year.
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Kenya’s medium term debt management strategy remains in jeopardy due to rising expenditure demands, prolonged impacts of COVID19 on the real economy, and reducing revenue mobilization. Therefore, the East African nation might suffer from high debt distress due to increased overall cost of debt.
Kenya is at risk of breaching all threshold ratios: debt service to revenue and debt service to export ratios – if there is no any policy intervention in the upcoming year.
Budget Appropriation Committee (BAC) urges Treasury to commence the process of renegotiating the terms and conditions of existing loans. BAC in this regard says the government can ask for a grace period of interest and principal payments.
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