• CoB warns the debts often attract high interest rates, increase inflation and burden future generations.
• The National Treasury may be faced with the challenge of funding a Sh317 billion budget next fiscal year.
Image: FILE
The Controller of Budget has warned of a debt crisis if the National Treasury continues to borrow to meet budget deficits.
Margaret Nyakang’o argues, "Increased public borrowing may result in undesirable fiscal consequences.”
Public debt sustainability indicators already demonstrate Kenya faces a high risk of debt distress.
President Uhuru Kenyatta’s administration only has room to borrow Sh590 billion to hit the Sh9 trillion public debt ceiling MPs set in October 2019.
Next year’s budget deficit is projected to be about Sh1 trillion, opening a Sh317 billion budget hole.
The latest Treasury reports show public debt stood at Sh8.41 trillion as of August 2020.
Nyakang’o warns the debts may attract high interest rates, increase inflation and overburden future generations.
“The Kenya shilling may also depreciate against the world’s major currencies due to demand for foreign currency to service foreign currency-denominated debt," she said.
The budget controller raised the concerns in the review of the national government spending for the first quarter of the financial year.
The COB wants the National Treasury to “take appropriate measures to ensure public debt remains at sustainable levels.”
Nyakang’o says a boost in revenue by expanding domestic tax sources to meet government obligations would suffice.
“While borrowing, the government should ensure that its financing needs and payment obligations are at the lowest market cost and with prudent risk,” the COB advised.
Debt repayment consumed Sh138.8 billion for the three months under review, which was 40 per cent of revenue collected during the review period.
Treasury CS Ukur Yatani recently sought to allay fears Kenya would default on its loans, citing a projected repayment plan for 10 years.
Apart from the debt, COB reprimanded the National Treasury over development allocations short of the required 30 per cent share of Sh2.9 trillion budget.
Development projects were hit in the current financial year with the allocation of Sh633 billion.
The allocation is 21.7 per cent of the budget, with the recurrent expenditure taking up Sh2.3 trillion, representing 88.3 per cent.
The Public Finance Management Act, 2012, provides that a minimum of 30 per cent of the national and county government budget shall be allocated to development.
“The outlined proportions are in contravention of the PFM Act, 2012. CoB advises the National Treasury to ensure that allocations towards development expenditure are within the law,” Nyakang’o said.
The report further shows that state officers continued to be on a spending spree despite the call by National Treasury to focus on the Covid-19 response.
Travel consumed Sh2.7 billion in the period under review, a decline compared to the Sh3.53 billion spent in the same period last year.
Local travel took up Sh2.04 billion, whereas Sh628.02 million was spent on foreign travel, a difference of about Sh800 million.
Government agencies spent Sh726.9 million on hospitality – largely entertainment - during the period under review, and Sh43.6 billion on "other expenses".
The President’s office was the top spender on hospitality at Sh209 million, followed by Foreign Affairs at Sh136.8 million.
The Sports department followed at Sh56.3 million; National Assembly (Sh19.8 million); Judiciary (Sh19.5 million); Judicial Service Commission (Sh18.54 million) and EACC (Sh12.6 million).
Training took up Sh109.24 million; motor vehicle maintenance (Sh296.5 million); maintenance of other assets (Sh99.4 million); legal fees (Sh132 million); and advertising (Sh59 million).
Expenditure reports from Ifmis and those from Ministries, Departments and Agencies (MDAs) indicated that some generated and spent their income in carrying out their activities
The CoB report has further revealed an unprecedented increase in spending on pensions and gratuities.
The amounts went up by 37 per cent to Sh119.9 billion, compared with Sh86.9 billion for the last financial year.
Of these, Treasury released Sh20.4 billion, Sh5 billion higher compared to the same period last year.
The budget boss has also decried slow disbursements by the National Treasury saying the situation is affecting budget implementation.
Nyakang’o says the Treasury should have ordinarily released 25 per cent of the annual estimates but had only released 17.9 per cent during the period.
Total exchequer issues for the period amounted to Sh494.67 billion, a decrease compared to Sh571 billion recorded in the same period of FY 2019-20.
“It would be expected that by the end of the first quarter, the exchequer releases should be around 25 per cent of the annual estimates," the CoB said.
She said that from her analysis of financial reports submitted by ministries, Treasury is to blame for the low expenditure and pending bills at the end of the year.
“Delay in the disbursement of exchequers affects the implementation of programmes and plans by government entities and subsequently affects the timely delivery of services," Nyakang’o said.
The Budget controller thus wants the National Treasury to release funds to MDAs based on their annual work plans and cash flow projections.
Even so, the Exchequer may have saved up to Sh330 million in the first three months of the financial year.
The savings were attributed to a lower budget for the Auditor General and ending benefits to former President Daniel Moi, deceased.
A number of state officers, including President Kenyatta and DP William Ruto, took pay cuts to save monies for Covid-19 response.
(Edited by V. Graham)