60% of taxes to be committed to debt repayment in current fiscal year
The National Treasury headed by Ukur Yatani plans to spend Ksh.904.7 billion in debt repayment in the current financial year compared to Ksh.707.8 billion the previous year.
This represents 60 percent of taxes from Kenyans that will be committed to footing debts on a budget of Ksh3.2 trillion.
This even as Cabinet Secretary Yatani revealed that the country had fallen short by Ksh40 billion in the first two months of the current financial year, saying that he will represent a supplementary budget in January.
The country’s deficit budget deficit for the financial year to net June is set to rise 8.4 percent of Gross Domestic Product (GDP) from the 7.5 percent set three months ago on revenue declines.
According to a local daily report, CS Yatani said the additional gap will be covered by expenditure cuts and dividends from the government-owned firms.
As the government races to fund ballooning budgets, and analysis of the National Treasury statements on actual revenues and net exchequer issues indicated that actual tax receipts stood at Ksh.1.453 trillion against an original estimate of Ksh.1.807 trillion.
Kenya Revenue Authority (KRA) tax collections for the year ended June 30 were Ksh.354.1 billion off their original target as the tax man again missed the mark in expected revenue mobilisation.
More so, the government is mulling borrowing Ksh275 billion from three international financial institutions to cushion Kenyans and the economy from the negative impact of Covid-19.
Mr Yatani is in the final stages of sealing deals with the World Bank (Ksh100 billion), European Union Investment Bank (Ksh100 billion) and the International Monetary Fund (IMF) Ksh75 billion to bridge the deficit in the country’s revenues created by the pandemic effect on the economy.
The International Monetary Fund (IMF) board has already approved $739 million (Ksh78.4 billion) in emergency financing to help the country respond to the economic spat caused by the pandemic.
“The impact of COVID-19 on the Kenyan economy will be severe. It will act through both global and domestic channels, and downside risks remain large,” the IMF said in a statement.
China the biggest lender
China’s government, banks and companies lent some $143bn to Africa between 2000-2017, much of it for large-scale infrastructure projects, according to data from Johns Hopkins University. By some estimates, Chinese lending now dwarfs World Bank loans in Africa.
The Overseas Development Institute (ODI) estimates that lending from China makes up 33 percent of external debt service in Kenya, 17 percent in Ethiopia and 10 percent in Nigeria.
Terms of Chinese lending have generally been favourable, though a CGD study found they were consistently harder than World Bank terms, particularly for the poorest countries.
African Countries find China as safe heavens in terms of borrowing since Chinese institutions offered fewer grants, grace periods on loans were shorter, and the weighted mean interest rate was higher – 4.14 percent compared to the World Bank’s 2.1 percent.