The government borrowed an average of Sh3 billion per day in the last year to push Kenya's debt portfolio to Sh8.4 trillion, a new report reveals.
The disclosure comes as the Senate is expected on Wednesday to stamp the National Assembly’s approval of the National Treasury’s bid to increase the debt ceiling to Sh10 trillion to allow for more borrowing.
The Budget Implementation Review report by Controller of Budget Margaret Nyakang’o revealed on Tuesday that the debt ballooned by 14.6 per cent.
It rose from Sh7.34 trillion in March 2021 to Sh8.40 trillion in March this year.
“As of March 31, 2022, the public debt stock stood at Sh8.40 trillion, comprising 50.1 per cent due to external lenders and 49.9 per cent due to domestic lenders,” the report read.
In her report, Nyakang’o raises a red flag and calls for radical measures to arrest the situation.
“The Controller of Budget recommends that the National Government considers debt restructuring, hedging strategies, and the mopping up of idle cash held by public institutions,” the report reads.
The budget boss says the country is spending more than 60 per cent of its ordinary revenues on debt repayment — crowding out other pressing exchequer issues.
Out of the total debt, Sh4.20 trillion was borrowed from the external market — bilateral, multilateral and commercial banks — while Sh4.19 trillion was borrowed locally, mainly from the CBK and commercial banks.
Going by the borrowing trend, Kenya’s public debt will have grown fivefold from April 2013 to August 2022, when President Uhuru Kenyatta retires after the General Election.
The debt will likely hit at least Sh8.83 trillion, up from Sh1.89 trillion when the Jubilee administration took over from former President Mwai Kibaki’s government in April 2013.
Uhuru has been on the spotlight over massive borrowing by his administration.
The debt is taking a heavy toll on the government programme, combined with underperforming revenue collections and the Covid-19 pandemic as the state struggles to repay the loans.
Deputy President William Ruto has become the fiercest critic of the borrowing, accusing the government of blindly borrowing and ruining the economy.
In March, Ruto, who seeks to succeed Uhuru on the UDA ticket, said if he wins, his administration will investigate how the Jubilee administration incurred such a huge debt.
“Debt must be the last resort. We must not be slaves of debt from any place or any country,” he said.
But the President has come out to fiercely defend his administration’s appetite for debt, saying the money has been spent on funding mega projects across the country.
“I want to pose a question: How much is ‘too much’ borrowing? When does borrowing become ‘too much’ and unbearable to a nation?” the President asked during Madaraka Day celebrations on June 1.
“And if we can transport 10 times more passengers with SGR at half the price and half the time and move three times more cargo daily from Mombasa to our neighbours, then our borrowing has surely been worthwhile and paid tangible dividends,” he said.
In her report, Nyakang’o attributed the sharp rise in public debt to the shilling depreciating against the dollar in recent years.
“From the analysis of public debt growth, the exchange rate may be a contributing factor to this growth, given that 49.9 per cent of the public debt is denominated in foreign currency,” the report reads.
“The exchange rate of the Kenya Shilling to the US Dollar at the beginning of the financial year in July 2021 averaged at Sh108.04 to the US dollar.
"[This] compared to the exchange rate as of March 31, 2022, when the dollar averaged Sh114.61 per shilling, a difference of Sh6.57 (6.08 per cent exchange rate depreciation),” the report says.
“A growing foreign currency-denominated public debt in the background of a depreciating shilling necessitates an increase in the amount required for debt repayment provided for in the budget,” it says.
On Wednesday, the Senate is expected to agree with the National Assembly and unanimously approve the National Treasury’s request to increase the country’s debt ceiling to Sh10 trillion from the current Sh9.1 trillion.
The move gives the National Treasury more headroom to borrow more to plug the budget deficit before the President retires.
The Treasury intends to borrow Sh846 billion in the next financial year beginning July 1, to plug the deficit in the Sh3.3 trillion budget.
“The deficit in the budget estimates for 2022-23 and the medium-term shall not be fully financed and development partners may stop funding ongoing projects if the debt ceiling is not increased,” a report by the Senate’s Delegated Legislation committee that scrutinised the Treasury’s request read.
While tabling the report recommending to the House to increase the ceiling, committee chairman Mohamed Faki (Mombasa) said the current debt ceiling of Sh9 trillion has been depleted due to the Covid-19 pandemic that hit revenue collection.
He also cited the war in Ukraine that hit revenue performance, leading to more borrowing.
“The National Treasury has a number of policies aimed at addressing the macroeconomic pressures caused by increased expenditure demands and promoting fiscal consolidation,” Faki said.
However, DP Ruto’s allies criticised the government for the huge borrowing, saying the higher debt ceiling will trigger introduction of more taxes and thus a rise in prices of common commodities.
“The government has not been fair enough to tell Kenyans [about] the issue of public debt management. The public does not have confidence in the borrowing by the government,” Nandi Senator Samson Cherargei said.
In 2019, Parliament increased the debt ceiling from Sh6 trillion to Sh9.1 trillion.
Last week, National Assembly Majority leader Amos Kimunya said the Treasury’s request to amend Section 50 (2) of the Public Finance Management Regulations to read that "the public debt ceiling shall not exceed Sh10 trillion," was a temporary measure to plug the deficit.
The next government, he said, would request Parliament to put the debt ceiling as a percentage of the GDP, and not an absolute figure.
The country’s budget boss said Kenya is spending more than 60 per cent of its ordinary revenues on debt repayment — crowding out other pressing exchequer issues.
“There is a need to enforce public debt policies to ensure borrowing is at a minimal cost and effective exchange rate control to reduce the high expenditure on payment of both principal and interest amount since foreign debts are denominated in foreign currency,” the COB's report read.
According to the report, the Treasury spent Sh651.73 billion on debt repayment over the nine-month period compared to Sh614.69 billion incurred the same period last year.
“This is attributed mainly to increased interest payments for external and domestic debt compared to Sh425.09 billion recorded in a comparable period of FY 2020-21,” the report reads.
“External debt servicing amounted to Sh237.58 billion, consisted of Sh144.72 billion for principal payment and Sh92.86 billion for interest payment,” it adds.
The expenditures on domestic debt payment stood at Sh414.15 billion, consisting of Sh81.92 billion and Sh332.23 billion for principal and interest payments, respectively.
In the current financial year, Sh.1.17 trillion was allocated for repayment of debt from a budget of Sh3.03 trillion.
(Edited by V. Graham)
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