Debt payments surpass State running expenses

Debt repayments for the first nine months of the current fiscal year have exceeded the national government’s recurring spending on items such as civil servant salaries for the first time, underscoring the government’s growing burden of borrowing.

Kenya spent Kshs 815.35 billion on debt repayments between July 2022 and March, up from Sh740.69 billion in the same period a year earlier.

Treasury data shows that this is the first time in Kenya’s history that debt costs have exceeded recurring expenditures of Sh814.7 over the period.

is reading: The shillings 67 billion deficit agonized amid debt repayments

Kenya has ramped up borrowing under former President Uhuru Kenyatta’s administration to build infrastructure, straining its finances as loans fall due amid criticism over the resulting debt burden.

Treasury data shows debt payments nearly tripled in six years, after jumping from Sh273.64 billion in the nine months to March 2016.

This left President William Ruto’s administration with a narrow fiscal space to roll out his policies, preventing it from making deeper cuts in the country’s borrowing.

Treasury data shows the new administration tapped NIS 452 billion in loans in the six months to March, more than the Sh434.6 billion its predecessor borrowed in the same period a year earlier.

Analysts expected the Roto administration to cut new borrowing by a larger margin after committing to ramping up tax collection.

But the increase in spending under the bottom-up economic plan, which proposes directing resources to sectors that can have a huge impact on creating jobs and wealth, has upended the plan for a slowdown in debt repayments.

Debt-servicing costs have soared in recent years after the grace period extended by rich countries, especially China, expired as domestic debt payments were made quickly.

At Sh815.35 billion, debt repayments gobbled up the equivalent of 58.52 per cent of the Sh1.39 trillion in taxes collected in the nine months to March 2023, leaving little money for road construction, affordable housing and repairs to the ailing health sector – which are Essential to creating jobs and improving living standards.

Kenya’s debt more than quadrupled to Sh8.66 trillion under Dr. Ruto’s predecessor, who invested heavily in new railways and other infrastructure.

According to the International Monetary Fund, the surge in liabilities has left the country at high risk of debt distress. Kenya insisted it could not default on its debt repayment obligations.

We are not insolvent. We can finance your repayment. “It’s a big sacrifice but we’re actually able to pay,” David Ndi, chief economic adviser to President Ruto, said recently.

He said a default was a “very bad idea” because it would force the government to “spend the next three to four years in very protracted debt restructuring negotiations”.

The increase in debt absorption came at a period of revision that saw the country cut recurring spending and development spending.

budget matters

Recurrent spending fell by Sh4 billion to Sh542.6 billion when the presidencies of Ruto and Kenata were compared, while development expenditure fell by Sh32.7 billion to Sh106.7 billion.

Recurring expenses typically include civil servant salaries, domestic and foreign travel costs, and fuel costs for the government vehicle fleet.

Analysts at the Parliamentary Budget Office (PBO) – a unit that advises lawmakers on budgetary and financial matters – say public borrowing in coming years will be driven more by the need to pay off outstanding debt than by financing infrastructure development.

The government largely borrows money both domestically and abroad to bridge annual budget deficits.

The growing debt burden reflects the rapidly maturing commercial and semi-concessional loans contracted out by the Jubilee administration in its early years in office to build modern railways, highways, bridges and power stations.

“While the fiscal deficit initially resulted from large infrastructure-related expenditures, increases in debt-servicing expenditures along with significant expenditures (such as implementation of the economic recovery strategy and national expenditures related to elections) are expected to play a larger role,” PBO writes in an analysis on the strategy. Debt management.

The Treasury in March cut its debt repayment budget for this fiscal year to Sh1.36tn from a previous estimate of Sh1.39tn.

is reading: The Treasury provides 32 billion shillings in repayment of reduced debt

“The debt service has been adjusted downward due to the lower projected budget deficit,” said Aaron Sirima, director general of the Treasury’s Office of Public Debt Management. The daily business via text last month.

There is also a constant replacement of domestic (short-term) borrowing with concessional (long-term) external borrowing. Note that domestic debt service through treasury bills is due within a fiscal year, while soft loans are due over 15 years and beyond.”

Large offshore payments budgeted at the start of the fiscal year included Sh103.75 billion to China’s Exim Bank which financed the standard gauge railway, among other projects, and Sh61.88 billion to a syndicated loan arranged by Comesa-owned Trade and Comesa. Development Bank.

Others are interest payments on Eurobonds (Sh53.57 billion), the International Development Association of the World Bank Group (Sh49.19 billion), Italy (Sh19.73 billion), France (Sh17.98 billion) and Japan (Sh12.42 billion). .

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