The Controller of Budget (CoB) is concerned that Kenya will spend Sh1.1 trillion of its Sh1.87 trillion projected revenue collection next financial year to pay debts.
Presenting views on the 2019/20 Budget Policy Statement (BPS) before the Senate Finance Committee, Joshua Musili, director research and planning at the CoB said it is unreasonable for the country to spend 60 per cent of its revenue in debt payment.
Musili said the high debt obligation will leave the National Treasury with only Sh600 billion for other expenses.
‘’Our debt situation has hit the roof. It means, for every Sh100 the government will collect next year, 60 per cent will go towards debt payment. This is not good for the economy,’’ Musili said.
He asked the Mandera Senator Mahamud Mohamed led committee to compel the National Treasury to restate its fiscal policy to avert an economic crisis.
Bungoma Senator Mose Wetangula faulted the government for consistently insisting that the country’s debt is manageable when it is actually in turmoil.
“It is high time the Treasury stops massaging us with impressive economic figures to conceal the impending debt crisis. It has for instance projected the country’s GDP to grow 6.1 per cent and 6.2 per cent next year above IMF and World Bank estimates,’’ Wetangula said.
If Treasury’s proposal is retained, it will be the first time the country’s debt obligation will be hitting above a trillion shilling, considering that it will be spending Sh870.62 billion on debt obligations by end of this fiscal year in June 2019, comprising Sh505.86 billion in domestic obligations and Sh364.66 billion to foreign creditors.
Last week, the exchequer tabled the 2019 Medium Term Debt Management Strategy (MTDS) to parliament that revealed the true nature of the country’s debt obligation.
According to the report, Kenya’s debt is currently at Sh5.27 trillion with average maturity of 16.9 years at an annual average interest of 7.7 per cent.
This means that the country is to pay Sh400 billion every year in interests, bringing total interests for 16.9 years to Sh6.76 trillion.
The MTDS further shows that debt payment grace period for Kenya has stagnated at 4.5 years down from 6.9 years in 2016 and 10 years before President Uhuru Kenyatta took over from Mwai Kibaki.
The low grace period exerts pressure on the country’s debt obligation, forcing it to either borrow to repay maturing debt or negotiate for rollovers.
Both local and international experts have on various occasions criticised the country’s debt management strategy, with the World Bank and IMF blaming it for paying lip service to its framework on prudent debt management.
In a report titled Country Policy and Institutional Assessment 2017 released September last year, World Bank faulted Kenya for always publishing impressive debt management plans yet it does not follow through with implementation.
“Although on paper the Medium-Term Debt Management Strategy provides a framework for prudent debt management, it is not clear that it is being followed, considering the sovereign debt trajectory that has kept increasing at a sustained pace over the past years,” the report read.
Kenya’s debt has risen rapidly since President Uhuru Kenyatta took power. IMF has attributed this to poor fiscal discipline in 2017.
According to the Draft 2018 Budget Review and Outlook Paper issued by Treasury on September 19, Treasury intends to borrow up to Sh2.13 trillion in the next five years to fill budget deficits, bringing the debt to just above Sh7 trillion by 2022.