Pain for Kenyans as Treasury Department borrows Sh1 trillion in a year


Finance Minister Ukur Yattani. [Edward Kiplimo, Standard]

The national treasury has borrowed over Sh1 trillion in a single fiscal year, which experts believe will harm ordinary Kenyans if this continues.

By the end of June, Kenya‘s total national debt had risen to Sh7.71 trillion, up from Sh1.02 trillion from Sh6.69 trillion in the same month last year, data from the Central Bank of Kenya (CBK) shows.

This means that the government has borrowed Sh2.8 billion a day on average.

Since March last year, when the country recorded its first case of Covid-19, the government has borrowed 1.43 trillion shredders.

The Treasury Department has argued that the increased borrowing since March last year reflects the harsh conditions caused by the Covid-19 pandemic, which reduced government revenues.

However, critics point fingers at the corruption and waste that contributed to inflated spending, which then resulted in binge-borrowing.

University of Nairobi economics professor Samuel Nyandemo said that in the face of a pandemic, the Treasury Department should have frozen some spending, especially the huge capital spending like roads, and prioritizing spending on health care.

“When faced with a challenge like this, you put other commitments and focus more on your immediate priority, health care,” said Dr. Nyandemo Sunday standard.

He said continued borrowing was making Kenya above its means and stifling the meager revenues that should have been used to cushion the country.

A little more than half of the country’s national debt, Sh4.01 trillion, is foreign borrowing, largely from multilateral lenders and government bonds like the Eurobond.

The remaining Sh3.7 trillion is domestic, which the government receives largely through the issuance of treasury bills, short-term government debt and longer-term government bonds.

Finance Minister Ukur Yattani. [Edward Kiplimo, Standard]

Since 2013, President Uhuru Kenyatta’s government has borrowed $ 5.82 trillion in eight years.

That’s almost five times what former President Mwai Kibaki borrowed in 10 years – Sh1.2 trillion – from June 2003, when he read his first household, to June 2013.

President Kenyatta insists that most of the money borrowed has been used to grow the economy, which is reflected in the country’s gross domestic product (GDP) expansion, or the national cake’s measure, from Sh4.3 trillion in 2012 to Sh10.3 Trillions by the end of last year.

Infrastructure projects such as roads, railways, seaports, airports, energy projects and dams are some of the main beneficiaries of the trillions on loan.

In his Kisumu Madaraka Day speech on June 1, Uhuru tried to defend its economic legacy by stating that Kenya had a GDP of around 6.4 billion shutters when it gained independence in 1963.

“After 74 years of colonial occupation, Kenya was worth so much every year,” he told Kenyatta, adding that the combined governments of Jomo Kenyatta, Daniel Moi and Kibaki would raise this national cake to Sh4.5 trillion within 50 years .

“But in just eight years my government has doubled what the colonizers and the first three governments did in 128 years,” said Uhuru.

“Our national cake, or our annual value as a country each year, is now Sh 10.3 trillion. Even if you factor in inflation, our economic acceleration program has multiplied what the founding fathers left in our care. ”

Inflation is the general increase in the price of goods and services. To get an accurate picture of the size of the economy, economists tend to adjust inflation to get what is known as real GDP.

Government critics, however, say the infrastructure-driven growth has not leaked to ordinary Kenyans, and CBK Governor Patrick Njoroge at one point said Kenyans “cannot eat the GDP”.

Finance Minister Ukur Yattani. [Edward Kiplimo, Standard]

Nyandemo argues that increased borrowing meant high debt servicing, with a large chunk of tax revenue going into paying interest rather than into critical public services like education, health and safety.

After years of debt increase faster than the country’s economic growth or tax revenue, Kenya found itself in a precarious position due to the Covid-19 pandemic.

Fight pandemic

With some of its major foreign exchange drivers, such as tourism, export and aviation, battered by the global health crisis and with many workers becoming unemployed, the government – like many others in sub-Saharan Africa – struggled to respond to the negative effects of the pandemic.

While giving tax breaks to individuals and businesses, the government was also forced to increase its borrowing to stimulate an economy that contracted for two consecutive quarters.

In addition to the Big Four Agenda projects for job creation, universal health care, food security and affordable housing, the money borrowed also went towards paying some of the outstanding bills and VAT (VAT) refunds and people with disabilities.

In addition, the funds, in particular from the World Bank and the African Development Bank, were used to fight the pandemic, e.g.

However, since the country’s risk of default was assessed as high in a joint study by the World Bank and the International Monetary Fund (IMF), Kenya was forced into a three-year program aimed at reducing debt vulnerability by increasing tax revenues and spending.

The government has pledged to the IMF that it will target a budget deficit – the hole that remains when spending exceeds tax revenue – at no more than 8.7 percent of GDP for the fiscal year.

Treasury was therefore expected to borrow Sh898 billion, 8.6 percent. But it widens the hole.

In April it presented the National Assembly’s first supplementary budget, which increased the deficit to 9.3 percent, with the Treasury Department now expected to borrow Sh1.044 trillion.

Finance Minister Ukur Yattani. [Edward Kiplimo, Standard]

Meanwhile, the target for the Kenya Revenue Authority (KRA) has been reduced to Sh1.594 trillion from the original Sh1.633 trillion.

Total spending rose to Sh2.89 trillion from the initial estimate of Sh2.79 trillion.

And it wasn’t over yet. On the eve of his budget speech in June, the Cabinet Secretary of the National Treasury Ukur Yatani presented the second mini-budget, which increased the fiscal budget as a fraction of GDP to 9.4 percent, as it was clear that the KRA was not Shill 1.594 trillion in taxes.

Instead, the country should increase its borrowing by Sh5 billion to Sh1.049 trillion.

There was a slight cut in spending during that time, which dropped to Sh2.866 trillion with public universities among the main victims.

The National Assembly’s Budget and Budgets Committee approved the changes but expressed concerns that the budget deficit remained high compared to the original budget estimate of 7.5 percent.

“With the exception of an additional 6.49 billion shutters for the provision of Covid-19 vaccines, it is determined that many of the additional additional expenses are not related to Covid,” the committee said in the report.

It expressed doubts that the revised Sh1.469 trillion tax revenue target would be better given the continued underperformance of the economy.

Since then, however, KRA has surpassed its goal of raising Sh1.544 trillion by the end of fiscal 2020-21.

But this was after the tax officer’s collection target was reduced by Sh164 billion.


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