It is now official — and a disturbing reality: The country’s spiralling debt will hit Sh5.6 trillion by end of this year and peak at Sh7 trillion by 2022 when President Uhuru Kenyatta exits office.
An annual Public Debt Management report tabled in Parliament yesterday by the Treasury Cabinet secretary Henry Rotich indicates that the national debt was Sh5.1 trillion as of June— Sh2.5 trillion (domestic) and Sh2.6 trillion (external). In June last year, the debt was Sh4.4 trillion.
In the detailed list of lenders, China leads at Sh559.1 billion, Italy (Sh101.9b), Germany (Sh34.7b), Belgium (Sh10.2b) and USA (Sh2.9b).
Others are the International Development Association (IDA), Sh516.8b, Africa Development Bank (ADB) Sh204.8b and International Monetary Fund Sh71.6b.
But amid the worrying trend, Rotich remains optimistic; he says the country’s Gross Domestic Product (GDP), which has been on upward trajectory—from 4.9 per cent in 2017 to this year’s forecast of 5.8 per cent— will absorb the debt.
He says the debt situation is within sustainable levels, adding that during the 2017/18 financial year, the country’s national debt operated within the 50 per cent to GDP.
The CS says the economy has remained stable despite the shocks of drought, electioneering period and global economic slowdown.
“The country’s growth was mainly attributed to improved weather conditions, stable business environment and consumer confidence,” he says in the report.
The increase in public debt has put a lot of pressure on the government with key infrastructure projects such as roads, electricity and water, among other basic provisions at risk of suffering budget cuts.
To compound the situation, the government has been experiencing a slump in revenue collection both in 2017/18 and the current financial year that saw it slash its current Sh3.026 trillion by Sh37b.
And as the government grapples with options to plug its budget hole, it has resorted to taxing basic commodities, a painful measure that has only spiked the cost of living for the ordinary citizen. The measure also threatens the country’s competitiveness as a manufacturing hub because of the cost of doing business.
To mitigate the effects of the raising national debt, Rotich said Treasury was in the process of implementing the fiscal consolidation to improve the balance between public revenues and expenditures to reduce the debt accumulation rate.
“Implementation of fiscal consolidation will ensure that public debt remains within sustainable levels. It is pleasing to note that great achievements have been made in bridging the country’s infrastructure gap,”he says.
He adds that the National Treasury will adhere to the provisions of the Public Finance Management (PFM) Act and its regulations to ensure the cost of public debt remains low and affordable.
“The risks of public debt stock are actively monitored and managed and that in doing so, the Treasury will continue to diversify fiscal funding sources and the mix of currencies to manage currency risks and at the same time lengthening the maturity profile of the debt to reduce refinancing risks,”he says.
Contributing to the debate on the report, Leader of minority in the National Assembly John Mbadi said the debt foretells a risk to the economy.
He asked the government to protect the interest of the poor majority in the management of the national debt which was likely to go out of hand.
“Definitely something has to be done to check the levels of borrowing and ensure that the money is put where it is required. You cannot borrow to pay salaries and later increase the taxes on the poor,” he said.
The report notes that domestic debt increased from Sh2.1 trillion in 2017 to Sh2.5 trillion last June, which is 49.1 per cent of the national debt.
External debt, which includes guaranteed debt increased by 12 per cent from Sh2.3 trillion in June 2017 to Sh2.6 trillion last June representing 50.9 per cent of the total public debt.
The increase according to the National Treasury was largely on account of Sh200 b of International Sovereign Bond, which was borrowed during the 2017/18 financial year to fund key infrastructural projects among them electricity, roads and water.