Almost half of revenue will be used to pay debts - MPs told

Public debt repayment will eat up almost half of the national government’s ordinary revenue in the next financial year, MPs were told.

International Budget Partnership Kenya (IBP Kenya) and the Institute of Certified Public Accountants of Kenya (ICPAK) said public debt repayments continue to take the lion's share of ordinary revenue.

In a joint submission on the Division of Revenue Bill 2023 to Senate Standing Committee on Finance and Budget, the two institutions said public debt repayment is crowding out the amount available for the division of revenue and hurting allocation to counties.

They said public debt repayments are expected to account for 48.6 per cent in the 2023/24 Financial Year.

“This is especially concerning in the context of current talks to increase the debt ceiling to 55 per cent of GDP, which would ideally provide the government with more space to borrow,” they added.

The two noted that public debt servicing is projected to increase by 34 per cent in the year 2023 from Sh930.35 billion to Sh1.25 trillion.

IBP Kenya is a Kenyan non-profit organisation working to advance transparency, accountability, participation, and equity in the national and county budgeting processes.

ICPAK on the other hand is a statutory body of accountants established under the Accountants Act of 1978, mandated to develop and regulate the accountancy profession in Kenya. 

The two added that crowding out of the equitable share through increasing debt obligations at the national level raises concerns over the prioritisation of financing national-level spending over spending at the county level.

“At the national level, unrealistic revenue projections coupled with accelerating expenditure levels continue to stretch the budget deficit, increasing the reliance on debt financing for direct spending,” they said.

They further noted that with limited tax revenue and growing debt obligations, public debt servicing costs increase, leaving fewer resources for counties in the form of equitable share.

“The worrying trend here is that average growth in public debt service is more than 4 times the growth in county allocation as shown by the summary above.”