Treasury Cabinet Secretary Henry Rotich. PHOTO | FILE
Kenya’s
annual debt repayment is set to hit Sh618.5 billion next year, which
will see the Treasury spend an estimated Sh40 out of every Sh100
collected from taxpayers on servicing the ballooning loans.
The
repayment bill represents a 38.5 per cent jump from Sh446.4 billion
spent on public debt this year compared to a projected 12 per cent
growth in tax collection, which is a key indicator of the country’s
ability to repay.
Figures contained in the Division
of Revenue Bill show that the State will spend Sh172 billion more to
service loans in the financial year beginning July 2017, exerting more
pressure on taxpayers who will also finance the General Election.
The
Jubilee government has accelerated borrowing in the past four years to
build a modern railway, new roads and electricity plants, but the rate
of tax collection has not matched new debt uptake.
“These
(public debt costs) comprise of the annual debt redemption cost as well
as interest payment for both domestic and external debt,” says the
Treasury in the explanatory notes to the Bill.
The huge
increase means that taxpayers will now have to dig deeper into their
pockets in the coming years to pay for the growing debt burden.
The
debt repayment will constitute 40 per cent of the projected Sh1.5
trillion tax collection compared to this year’s 32 per cent.
The
debt repayment load is double what is being spent to build the standard
gauge railway (SGR) from Nairobi to Mombasa. It can also fully fund
county governments for two years.
The amount is 11 times bigger than what the government spent on roads last year.
It almost matches the Sh673 billion that the State is planning to spend on development projects next year.
However,
the government has barely exhausted 75 per cent of its development
budget in recent years and if the trend continues, debt servicing will
dwarf the entire amount poured into roads, rail, dams, power, ICT and
other infrastructure.
Biggest budget item
Debt repayment remains the Treasury’s biggest budget item compared to essential expenditure lines like education and health.
Next
year’s repayment amount is more than double the Sh282 billion that the
State spent in the year to June 2013, indicative of the heavy loans
uptake under the Jubilee government.
The country’s
overall public debt currently stands at Sh3.5 trillion, up from Sh2.1
trillion in November 2013 at the end of former president Mwai Kibaki’s
administration.
The ballooning debt has raised concerns that the growing appetite for loans risks hurting the economy.
“Although
public debt remains sustainable, margins for manoeuvre are rapidly
narrowing,” the World Bank said in its latest economic update on Kenya.
The
Treasury has said that Kenya is still able to pay its debts, arguing
that the infrastructure investments made will generate enough economic
growth and revenues.
But
the World Bank has cast doubt on this argument, saying that despite the
expensive investments, Kenya’s productivity is falling.
“Overall,
productivity in Kenya is low and falling, which raises the question of
whether Kenya is getting high enough returns on its very significant
public investments,” says the bank.
Economists have
also raised concern about the viability and cost of the debt-funded mega
projects like the SGR and the Galana Kulalu irrigation scheme.
Despite
debt repayment racing 38.5 per cent next year, revenue growth is
projected at 12 per cent to Sh1.5 trillion. This mismatch could exert
pressure on Kenya if the trend goes on for several years.
The Treasury plans to continue its borrowing spree with a number of new loans lined up next year.
These
include a Sh148 billion loan from China Exim Bank for the
Nairobi-Naivasha SGR leg, Sh50 billion World Bank loan for the
Isiolo-Mandera Road and Sh50 billion for the Kibwezi-Isiolo Road.
“We
are repaying others (loans) and as long as our economy is growing, then
our (debt) thresholds with respect to the size of the economy is what
we look for,” Treasury secretary Henry Rotich said on Monday.
“We
have projected the economy and seen how our growth is going to be
especially if we maintain the momentum we have now. That should give us
the space (for debt uptake) going forward.”
Kenya has
also been flirting with the idea of floating another Eurobond but is yet
to indicate if it will proceed with it. The International Monetary Fund
(IMF) has warned that a Eurobond is comparatively expensive and should
be financing of last resort.
Renaissance Capital senior
economist Yvonne Mhango recently said that if Kenya took up a Eurobond
it should be limited to below $1 billion (Sh100 billion) as part of a
wider slowdown in debt accumulation to avoid going into debt distress.
Next
year’s 38 per cent jump in loan repayment will come a year before the
first tranche of the June 2014 Eurobond proceeds becomes due.
The
five-year $500 million (Sh50 billion) Eurobond will fall due in 2019,
meaning that debt repayment figures are likely to continue going up.
Other
loan repayments like the amounts spent for the Nairobi-Mombasa SGR will
become due in 2023 while the 10-year Sh150 billion Eurobond will have
to be repaid in 2024.
gkiarie@ke.nationmedia.com
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