Kenya has been warned over its bulging debt repayment bill and the fact that it is increasingly using more of its tax revenue to settle debt rather than provide services.
Figures from the Quarterly Economic and Budget Survey(Q4), 2019/20 shows that Kenya’s total debt rose significantly from KSh 6 Trillion in December 2019 to KSh 6.9 Trillion as at June 30th, 2020.
The International Budget Partnership (IBP), a non-profit organization with Head Offices in Washington USA, offers Kenya some advice in a paper titled ‘The State of Kenya’s public debt: The thin line between a rock and a hard place.”
IBP observes that Kenya’s budget continues to be under pressure as the country increases its borrowing to service debts while also funding public projects and programs.
Public debt repayment obligations are already getting heavier even with a recent decision by parliament to approve a move by Treasury to increase the debt ceiling to KSh 9 trillion until 2024.
When the COVID-19 cases were confirmed in Kenya in mid-March 2020, borrowing was the only viable option to quickly raise the sizeable amount of resources required to meet the health care needs at the national and county level.
Kenya therefore borrowed domestically and externally to address the health pandemic as well as to cushion the poor who were affected by the measures put in place to reduce the rate of infections.
In the pre-COVID 19 era, Kenya already had a debt sustainability issue, especially due to its debt repayment obligations.
In the six months period January and June 2020, Kenya borrowed KSh 644 Billion, an increase of 11 % in overall Gross Debt in that period.
In this paper, IBP notes that this increased debt load is not unusual. The debt incurred was incurred in the last four months of the financial year and was framed as resources supporting the COVID-19 response.
Interestingly, Kenya’s Supplementary Budget passed in April of 2020, did not include budget lines that showed how these funds were allocated.
IBP says good practice would have listed emergency budget lines especially for measures that were short-term in nature such as testing and procurement of personal protective equipment.
The 2021 Budget does not also contain any pandemic -related budget lines with IBP now saying that, like in other countries, Kenya’s expenditure of the funds borrowed in the COVID-19 period was not transparent.
In its Budget Policy Statement 2020, the National Treasury has indicated that all additional resources in 2020/21 will be taken up by debt servicing and pensions.
IBP advises that Kenya has to find ways to reduce its debt repayment burden by restructuring some of its debt.
In addition, Kenya has to reduce its reliance on commercial loans which are more expensive and have shorter maturity periods.