Kenya's debt servicing costs have now exceeded its combined spending on recurring and development projects due to heavy outstanding debt, underscoring what a nightmare debt spending has become for the country.
An analysis of data released by the Treasury shows that in the nine months between July 2023 and March, the government used Sh1.24 trillion to service debt compared to Sh1.11 trillion spent on salaries and implementing development projects.
The high cost of debt servicing is a result of both external and internal liabilities maturing, with full-year spending expected to reach a record high of Sh1.86 trillion at the end of June. The Treasury revised the budget upward by Sh240.7 billion in the supplementary budget from the initial Sh1.62 trillion with 35 percent (Sh646 billion) going to internal departments.
Debt repayment spending represents nearly half of the national government's projected Sh3.8 trillion budget for the entire fiscal year.
This means that debt servicing leaves very few resources for other vital expenditures, as well as pushing the country into more debt to run the economy. Over the years, development spending, which has the largest multiplier effect on economic growth, has declined, as recurring expenditures and debt servicing cut into a significant share of the budget.
The Treasury Department says that reducing the fiscal deficit is necessary to stop the escalation of debt accumulation and maintain debt at sustainable levels.
“To achieve this, the government is on a path to fiscal consolidation in line with the approved debt anchor that pegs public debt as a percentage of GDP at net present value,” says Treasury Minister Njuguna Ndongo in the Plan 2024 Medium-Term Debt Management Strategy.
In the current financial year, development projects received a meager 11 per cent of the Sh4.28 trillion budget, while Consolidated Fund Service accounted for 39 per cent and recurrent expenditure 32 per cent.
Development spending for the nine months was Sh207.5 billion, less than half of the Sh457.2 billion allocated to projects for the entire year. Little spending on roads, schools, hospitals and other critical infrastructure facilities hurts the country's growth prospects by reducing human capital.
According to experts, development spending plays a major role in alleviating poverty by creating job opportunities and improving the economic situation of people.
The state Department of Economic Planning was the biggest spender on development projects at Sh31.3 billion, followed by crop management at Sh29.9 billion and roads at Sh26.6 billion.
Among the poor development performers during the review period was the Ministry of Housing, which spent just Sh3 billion against a target of Sh14.9 billion.
Medical services spent just Sh8.7 billion, a quarter of their target for the year of Sh32.5 billion. Skewed spending deviates from the government's bottom-up approach that was primarily aimed at raising the standard of living of the low-income to the wealthy.
During the last reading of the budget, Professor Ndongo promised to prioritize job creation and lowering the cost of living to accelerate economic recovery.
Recurring spending increased by 11 per cent during the period to Sh905.6 billion compared to Sh814 billion spent in the same period last year.
According to the Treasury, the public debt stock by the end of January stood at Sh11.2 trillion, representing 69.7 percent of the country's GDP.
The ballooning public debt was also a result of the local currency's decline against major currencies, reaching a record low of 161.36 to the dollar at the end of January before rebounding slightly to reduce external debt by Sh1.1 trillion.
The disclosures also revealed that the counties received Sh223.5 billion, a slight increase from the Sh212.7 billion disbursed to devolved units in a similar period last year.
This amount represents 58 percent of the total fair share allocation for the full year of Sh385.4 billion.
Tax collection for the nine months was recorded at Sh1.53 trillion against the full-year target of Sh2.49 trillion, leaving the tax official with the daunting task of collecting nearly Sh330 billion per month to meet the full-year target.
The significant revenue shortfall comes at a time when the Parliamentary Budget Office (PBO), which advises lawmakers on budget and economic affairs, warned that the tax target would be missed by Sh330 billion.
Total Treasury revenue in the three quarters was Sh2.7 trillion resulting in a balance of Sh1.58 trillion.