BUDGET DAY

Treasury to increase external borrowing by Sh42 billion

In Summary

•This is despite growing concerns over the surging public debt that hit Sh5.4 trillion, according to latest update by the Central Bank

•Treasury has been on the spot for leaning more towards external borrowing which is often more expensive when it comes to debt servicing

Treasury cabinet Secretary Henry Rotich with the budget briefcase outside Treasury
Treasury cabinet Secretary Henry Rotich with the budget briefcase outside Treasury
Image: FILE

The government is expected to borrow more in the coming financial year to bridge the budget deficit which is expected to be Sh45 billion more compared to the current year ending June 30.

According to the budget estimates to be presented by Treasury CS Henry Rotich today, Kenya will have a budget deficit of sh607.8 billion compared to Sh562 billion in 2018/19.

This is despite growing concerns over the surging public debt that hit Sh5.4 trillion, according to latest update by the Central Bank.

Data by Kenya National Bureau of Statistics shows total debt was at Sh4.5 trillion as at the end of June 2018, meaning the government has accumulated close to Sh1 trillion in less than one year.

During the most recent Monetary Policy Committee meeting, CBK governor Patrick Njoroge said Kenya’s headroom for new borrowing has shrunk since it tapped the Eurobond market last month.

“It is time for the country to begin reorganising its debt,” he said.

Njoroge whose term was renewed, told reporters the $2.1 billion (Sh210 billion) Eurobond issued mid-May would “hopefully” allow Kenya to refinance some of its existing loans creating more room to expand the economy.

The latest Eurobond was issued in tranches of seven and 12-year paper. The seven-year portion of the latest issue was priced at seven per cent, while the longer tenure tranche was priced at eight per cent interest.

Shortly after World Bank approved a Sh75 billion (USD750 million) loan to Kenya that focused mainly on support for agriculture and housing.

Treasury has been on the spot for leaning more towards external borrowing which is often more expensive when it comes to debt servicing.

In the current budget estimates, Kenya’s external borrowing for the 2019/20 fiscal year is set to increase to Sh324.3 billion compared to Sh282 billion currently.

This, while cheaper domestic borrowing increases to Sh289.3 billion from Sh280 billion.

“Though the government has indicated commitment towards fiscal consolidation efforts, the challenge will be in maintaining a contractionary fiscal path given the prevailing expenditure pressures,” the Parliamentary Budget Office said in a statement.

The PBO said expenditure reduction is observed in development expenditure while recurrent expenditure has increased meaning the proposed budget may not be effective as a tool for economic growth.

In October last year, the IMF said Kenya’s risk of defaulting on debt repayments had increased to moderate from low, citing the government’s public investment drive and revenue shortfalls in recent years.

The country’s public debt as a percentage of gross domestic product (GDP) has increased to 55 per cent from 42 per cent since 2013, when President Kenyatta’s reign began.

The government has defended the increased borrowing, saying the country must invest in its infrastructure, including roads and railways.

However, according to the PBO, there are currently 545 stalled government projects in the country with an estimated cost of Sh365.9 billion, comprising of an estimated government funding of Sh286.9 billion and foreign financing of Sh78.9 billion.

Most of these projects are on-going with no or adequate budgetary allocations while others have completely stalled with some attracting interest from the contractor due to pending payments

While the budget is expanding, domestic revenue collection has been on a declining trend.

This year, the Kenya Revenue Authority is expected to miss the collection target by Sh118 billion despite Treasury revising KRA’s target downwards by five per cent in September to Sh1.605 trillion.

For the year June 30, the government is expected to spend a total of Sh856.6 billion to service both domestic and external loans.

The annual debt obligation is set 2019-20 cross Sh1 trillion mark, of which Sh366.4 billion will be interest.