As Kenyans digest Wednesday’s move by Parliament to okay public debt ceiling to increase to Sh9 trillion, World Bank has warned against growing debt that could render the country insolvent.
The global lender has called for fiscal consolidation to reduce debt from the current 62 per cent of Gross Domestic Product (GDP) to 55 per cent in the medium-term, a move that will ensure the country does not breach the 70 per cent maximum allowed threshold.
This is in the wake of a struggling private sector that has seen companies continue to issue profit warnings and layoffs, moves that affect corporate tax and Pay As You Earn revenues to the taxman.
The country’s debt currently stands at Sh5.81 trillion, Central Bank of Kenya data shows, which includes Sh3.01 trillion external and Sh2.79 trillion domestic.
With the cap now at Sh9 trillion, the government plans to borrow Sh3.1 trillion in the next four years.
This will include Sh2.1 trillion for net financing, Sh900 billion for county governments and state owned enterprises while Sh100 billion is targeted for addressing currency fluctuation.
“We really care about the pace of accumulation towards the 70 per cent threshold. Previously it has been going down but it has turned around and it is now picking up again,” said Peter Wankuru, World Bank’s senior economist-macroeconomics, trade and investment.
“It is important the public debt management office adopts measures to ensure that this debt is not accelerating,” he added, during World Bank’s Africa economic update on Wednesday evening.
It is estimated the government borrowed an average Sh2.5 billion per day from foreign markets between May and August, in what is seen as a growing appetite for external debt.
A public debt report tabled in Parliament last week shows during the period, Kenya borrowed six loans totaling Sh305.6 billion.
Acting National Treasury CS Ukur Yattani has however promised Kenyans the government will not hit the Sh9.1 trillion limit.
“We are not interested in burdening Kenyans with debt. Our intention is to grow our economy through sustainable borrowing. As it is today, our debt is sustainable,” Yatani told the Star. Meanwhile, World Bank has warned Kenya remains exposed to “deepening” global trade tension, climate shocks and slow pace of domestic reforms, which could cripple growth.
“The average growth among non-resource-intensive countries is projected to edge down, reflecting the effects of weaker agricultural exports in Kenya,” said Albert Zeufack, Chief Economist for Africa at the World Bank.
KRA risks losing out on private sector taxes in a tough economic environment where at least 2,000 workers have lost their jobs since July, with hundreds more expected to go home.
“There is a reduction in corporation income tax. Similarly, collection from employees in terms of PAYE is also falling,” Wankuru noted.
KRA has been missing its targets with the latest being 2018/19 when it collected Sh1.58 trillion against a target of Sh1.61 trillion, forcing the government to borrow to supplement its budget.
