BALANCING ACT

Debt burden forces Kenya to focus on recurrent expenditure - experts

The debt has also been seen to be affecting the operation of ministries

In Summary
  • A new report notes that while the government is obligated to pay its lenders, the Treasury is left to balance revenue collected with debt.
  • It linked the debt, which stands at Sh7.3trillion, to late disbursement of budgeted funds for development and operations.
Treasury Cabinet Secretary Ukur Yatani at Parliament Buildings on June 11.
BUDGET: Treasury Cabinet Secretary Ukur Yatani at Parliament Buildings on June 11.
Image: FREDERICK OMONDI

Kenya's debt burden has seen the Treasury leave out key development projects as it seeks to balance revenue collection and debt repayment, a new report shows.

Titled, Analysis of National Government Budget Implementation Report, it notes that while the government is obligated to pay its lenders, the National Treasury is left to balance revenue collected with debt giving recurrent expenditure priority over development funding.

It linked the debt, which stands at Sh7.3trillion, to late disbursement of budgeted funds for development and operations.

"Growth of the country’s gross domestic product (GDP) does not reflect on the revenue collected,"says the report by The Institute of Economic Affairs and the National Democratic Institute.

According to World Bank, Kenya's GDP currently stands at approximately Sh11 trillion while collected revenue stands at approximately Sh1.5 trillion, hence the tough balancing act.

The report says that while the public debt to GDP ratio has been maintained below the threshold of 74 per cent, it is not the same with the ratio for public debt to revenue and grants, and debt service to revenue and grants, which have remained in the red for some years.

The debt service to revenue and grants ratio for 2021 stood at 68 per cent instead of the recommended 30 per cent.

This means for every Sh1,000 collected as revenue by the government, Sh680 goes to repaying debt leaving Sh320 for spending.

The proportion of the development budget in Q3 of 2020/21 was 20.4 per cent which is below the fiscal responsibility threshold of atleast 30 per cent while the proportion of the spending on the recurrent budget increased from 67 per cent in 2016/17 to 77 per cent in 2020/21, IEA noted.

According to the report, the debt has also affected the operation of ministries with the health ministry listed as one of the most affected sectors.

The sector received just 23 per cent of allocated funds from the exchequer by March 31, 2021 yet this figure should be at least 75 per cent as the financial year nears the end.

The same was also witnessed under recurrent expenditure where disbursement to social protection, culture and recreation stood at 54 per cent.

National Treasury CS Ukur Yatani during his 2021/22 budget speech however termed Kenya's debt as sustainable but admitted that the economy’s debt carrying capacity had declined.

In defence of the government borrowing,  Yatani said they are implementing reforms to strengthen the institutional arrangement of public debt management by aligning the operations of the Public Debt Management Office to the Public Finance Management Act.

According to the Controller of Budget,  the country’s total debt stood at Sh7.34 trillion as of March 31, 2021, representing 16.7 percent growth from Sh6.28 trillion as of March 31, 2020.

Kenya borrowed Sh1.06 trillion during the coronavirus pandemic period to push the country’s public debt to the above Sh7trillion mark.

The two organisations called on the Treasury to strengthen it's revenue forecasting capacity to improve predictability of public funds while delivering on its fiscal consolidation strategy of at most 3 per cent budget deficit.

Yatani during the launch of Year 2022/23 and Medium Term Budget Preparation Process said that the fiscal consolidation strategy remains key in the government’s pursuit to attaining debt sustainability.

He said the government expects the budget deficit to narrow to 5.6 per cent of gross domestic product in 2022-23 from a target of 7.5 per cent of GDP in the year that started July 1.

This partly depends on the government achieving a target to grow ordinary revenue by 20.6 per cent in the next fiscal year, while reducing expenditure as a portion of GDP.