Each Kenyan will from July part with at least Sh9,600 to pay for interests due to the many loans borrowed by President Uhuru Kenyatta’s Jubilee government.
According to the government’s plan for the next financial year, the 47.5 million Kenyans will shoulder a total of Sh459 billion in loan interest accrued on both domestic and foreign loans.
This is expected to rise to Sh483 billion by 2022, to be paid through collected revenue, as the country remains in severe debt.
This means wananchi will face stiffer taxation as the Treasury collects money to pay the debts.
The figures are a cause of worry for Kenyans who are already burdened with high commodity prices, low liquidity and high interest rates on bank loans after the repeal of the rate cap.
The government’s Draft Budget Policy Statement for the 2020-2021 financial year, reveals that Sh311.4 billion will be spent on paying interest on loans from local commercial banks.
A further sh147.6 billion will be used to settle interest on loans borrowed by Jubilee from world lenders. The country’s external debt is currently Sh3.1 trillion.
The Jubilee government owes local banks and lenders Sh2.9 trillion, according to Central Bank of Kenya data. The total public debt is presently Sh6.048 trillion.
Critics have accused the administration of runaway borrowing despite corruption siphoning a big chunk of the money.
With the debt burden taking a toll on Kenyans, the government’s budget for interest loans in the current financial year ending June is Sh441.5 billion.
This means that the loan interest burden on each Kenyan has gone up by Sh400 from the Sh9,200 to Sh9,600.
Kenyans should, therefore, tighten their belts for tough economic times ahead amid soaring unemployment levels, a sluggish economy and job uncertainties.
In the 2019-19 financial year, Kenyans paid a total of Sh375.7 billion in interest on loans which was an increase from the Sh323.9 billion paid in 2017-18.
The government’s financial plan shows that by 2023, Kenyans will part with over Sh1.8 trillion in interest paid on the borrowings.
The worrying trend exposes Jubilee’s appetite for borrowing that has shot the country’s public debt more than threefold to Sh6 trillion since coming to power.
By June 2013, just three months after Jubilee rode to power, the country’s public debt was Sh1.8 trillion.
The rapid increase in public debt could erode Kenya’s sovereign rating, especially if it is not supported by a proportionate economic growth.
The National Treasury projects the economy will grow 6.2 per cent starting July 1, up from 5.9 per cent in 2020.
There are worries that the huge public debt burden could also put the government under pressure to raise its borrowing to finance its ambitious projects under the Big Four Agenda.
There could be a rise in borrowing to address the country’s public sector wages bill which is over Sh700 billion annually.
Kenyans have been edgy about the ever-swelling debt with fears worsened by MPs approval of Sh9 trillion debt cap last year.
In a move that could add to the already tough economy, the Treasury has revealed it is unable to fund its 2020-21 budget by Sh569.4 billion, hence must borrow.
To fund the 2020-21 gap, Treasury plans to borrow Sh247.3 billion from external sources and Sh318.9 billion domestically.
The Draft 2020 Budget Policy Statement – which sets the framework for the county’s spending – says other net domestic receipts account for Sh3.2 billion.
Of the borrowed funds, the government is looking at taking Sh239.13 billion in project loans and Sh2 billion in programme loans.
The country’s interest obligations due by June are Sh174.1 billion with caps for commercial sources set at Sh180.3 billion.
The current budget has a deficit of Sh657.4 billion to be funded through Sh300.7 billion domestic borrowing and Sh353.5 billion foreign financing.
Cabinet Secretary Ukur Yatani has decried the fact that that domestic sources – which is the state’s preference, have not been liquid.
“This was on the short end of the yield curve for the first half of the financial year 2019-20,” he said.
This may turn to be costly for development projects whose funding have also been disturbed by the Treasury preference of pending bills as a first charge.
At the same, there is little left for development – Sh703 billion this year, against a recurrent expenditure of Sh1.2 trillion.
The government is looking at engagements with multilateral, bilateral and commercial lenders and issuance of debt securities –Treasury bills and T-bonds, to finance the gap.
Yatani bemoaned borrowing becoming a challenge owing to an environment of unstable market interest rates.
“Market refinancing of maturing Treasury bills was not adequate and other sources of revenue had to be utilised to redeem the same,” the report reads.
Despite the gloomy situation, the CS says they expect that the second half of the financial year will be more liquid.
Yatani argues in the proposed BPS that the country has had trouble accessing concessional loans – which are much cheaper, owing to Kenya`s graduation to a lower-middle-income economy.
“This has led to a slowdown in access to concessional funding,” the BPS says.
This is why the cost of deficit financing and refinancing maturing debt has remained higher since 2014, the BPS says.
To get out of the quagmire, Yatani reasons that debt service burden will greatly benefit from fiscal consolidation to bring down the debt in the medium term.
“It is also expected that the country will restructure its debt portfolio by replacing expensive commercial debt with cheaper funds from alternative sources,” the CS said.
Treasury is also banking on the strengthened tax collection and budget cuts to reduce wage-related pressures and debt accumulation.
Yatani has promised to curtail the accumulation of commercial borrowing, especially the issuance of international sovereign debt securities.
Going forward, the debt service obligations will be evaluated from an economic security perspective to inform public expenditure policy in line with the Medium Term Debt Management Strategy.
The government is also going to be stricter in its management of debt with pricing and cost being the basis for settling on public investment projects.
“It is also anticipated that increased digitisation of government services and service delivery systems will lead to reduced recurrent expenditures,” the report reads.
The National Treasury is banking on its debt policy and borrowing policy to act as a guideline for borrowing and debt management practices.
The policy is a good signal that the government is committed to ensuring debt sustainability and to meet its debt obligations in a timely manner, Yatani said.
However, both the World Bank and IMF have warned that the country is drifting towards debt distress owing to Jubilee’s appetite for high-interest loans.
Amani leader Musalia Mudavadi has also been on a rallying call that the government goes slow on borrowing, lest it gets into ‘economic anarchy’.
The Parliamentary Budget Office has said the country may not escape costly loans soon.
The team of economic advisers to the National Assembly says that external debt carries comparatively higher interest rate volatility and exchange rate risk this fiscal year.
This is added to the decreasing concessional borrowing window coupled with revenue under-performance and expenditure increases – as in supplementary budget II.
It says that if these, alongside fiscal risks, lead to a deviation to the financing outturn, they could have transitory fiscal risk beyond 2019-20.
“This will increase the cost of borrowing and create debt management challenges in the medium term,” the PBO said in its review of the current budget.