Taxpayers are scheduled to cough up to Sh4 trillion to repay interest on public debt in what underlines the cash flow crisis occasioned by debt borrowed to fund budget deficits.
This means each of the 47 million Kenyans, starting July 1, will pay about Sh85,000 every year towards the settlement of the interest owed to lenders.
Treasury data shows taxpayers would pay – from collected revenues —Sh690 billion this financial year, with the figure set to rise to Sh750 billion next year.
The payments – both external and internal interest – are projected to rise to Sh811 billion in the year ending June 2025, to Sh883 billion, and Sh984 billion in the subsequent years.
The amount is twice the scheduled repayments for the principal loan, which is projected to peak at Sh1.59 trillion for four successive financial years.
Repayments for domestic interest account for the largest share of the projected payout at Sh3.3 trillion, whereas foreign lenders are set to be paid Sh734 billion.
The scheduled repayments account for 34.4 per cent of the Sh16.5 trillion projected as revenue to be collected during the five financial years.
In fact, the allocation is Sh500 billion shy of reaching the total development budget for the period, which is projected at Sh4.5 trillion.
Already, President William Ruto’s administration has set the stage for a stiffer tax regime to net Sh1 trillion in a move likely to worsen the tough economic times for Kenyans.
As of November 2022, Kenya’s total public debt, as per Central Bank of Kenya data, was Sh8.9 trillion, from the Sh8.58 trillion balance left by President Uhuru Kenyatta's team.
The worrying trend has been carried over from the previous team, where Kenyans part with Sh1.8 trillion in interest over the past three years.
The payments are no match to critical interventions such as free secondary and primary education, which are projected to take up Sh556 billion for the period.
Debt repayments have also overtaken spending on wages, defence, pensions, and transfers to counties - which is projected at Sh2.3 trillion.
With the plans by the new administration to borrow more than Sh650 billion to finance the budget deficit, the amount is projected to be a few billions shy of the Sh10 trillion cap.
President William Ruto’s team is targeting to borrow Sh3.6 trillion by the end of his first term in office. The previous regime borrowed Sh2.7 trillion.
The revelations come against the backdrop of a World Bank observation that the poorest countries now spend over a tenth of their export revenues on servicing debts.
The World Bank in a December 6 press release said this was the highest proportion since 2000.
“A comprehensive approach is needed to reduce debt, increase transparency, and facilitate swifter restructuring—so countries can focus on spending that supports growth and reduces poverty,” the World Bank said.
“Without it, many countries and their governments face a fiscal crisis and political instability, with millions of people falling into poverty,” the lender warned.
Ruto’s team at the National Treasury thus has to strike a tough balance in implementing the President’s austerity measures without compromising service delivery.
Treasury, in the 2023 Budget Policy Statement draft, has acknowledged the inherent challenge posed by the increasing cost of debt service.
The Njuguna Ndung'u-led team attributed the challenge to a weaker shilling against the dollar, reckoning it would affect the government’s plans.
This is because about 50 per cent of the debt is from external sources, hence repayable in dollar currency.
“The rising interest rates both in the domestic and external market has an implication on the government’s overall debt service,” the Treasury said.
The Exchequer further acknowledged that, “A large proportion of revenue will be used to service debt while denying Kenyans other priority expenditures.”
While appreciating the link between debt sustainability and economic performance, Ruto’s administration says the plan to slash spending by Sh300 billion would improve the debt ratios.
“The government will continue to monitor the financial conditions before performing any liability management operations whose aim is to lengthen the maturity structure and reduce the refinancing risks in the debt portfolio.”
Treasury further said it was considering other options to refinance the 2024 sovereign bond maturities, citing limited access to cash.
“Market pressures due to war in Ukraine and the monetary tightening in the USA and Europe have limited access to the international market.”
“The inflation rates have led to high-interest rates and this has hindered the government in performing liability management on its debt portfolio,” the BPS reads.
Ruto team adds that it has initiated reforms in the domestic debt market “to cushion the government against the downsides of the risks stemming from external factors.”