Kenya faced a substantial fiscal challenge in the first half of the 2023/24 financial year as over half of the collected tax revenues, equivalent to Ksh.600.73 billion, were directed towards servicing maturing debt.
The figures, revealed in the latest expenditure disclosures from the National Treasury, underscore the growing burden on taxpayers.
By the end of December 2023, the debt repayment accounted for 57 percent of the Ksh1.05 trillion tax revenues collected by the Kenya Revenue Authority (KRA). This allocation translates to.Ksh 57 out of every Ksh.100 collected being utilized for settling maturing debts.
This disproportionate allocation left only Ksh.43 for critical areas such as development projects, recurrent expenses (including salaries), and national emergencies.
Public debt servicing took the lion’s share of the expenditure, claiming 89.9 percent of the total exchequer issues from the Consolidated Fund. Following closely were pension payments at Ksh.59 billion, and Ksh.8.3 billion allocated towards settling salaries and allowances of public servants.
Despite being not even midway through the total Ksh 1.866 trillion debt that the treasury is expected to settle within the current budget cycle ending in June 2024, the usage of taxes for debt repayment raises concerns.
The recent disclosures revealed an upward revision of this year’s total public debt obligation to Ksh 1.866 trillion from the initial estimate of Ksh.1.75 trillion.
The depreciation of the shilling, particularly against the dollar, has contributed to the increased cost of paying off foreign-denominated debt, especially from China.
Furthermore, the shilling’s current exchange rate at Ksh.160 per dollar has led to real exchange rate depreciation, impacting Kenya’s public debt/GDP ratio, according to the International Monetary Fund (IMF).
IMF suggests that such depreciation could assist in external sector adjustments to alleviate ongoing balance of payments pressures.