Kenya borrowed an average of Sh2.43 billion every day last year and paid commitment fees on loans yet to be disbursed or planned for, pushing total debt to Sh6.69 trillion as at June 30.
This means President Uhuru Kenyatta’s government has multiplied public debt almost four times since it came to power in 2013 when the country’s total public debt was only at Sh1.6 trillion.
The office of the Controller of Budget made this revelation in the National Budget Implementation Review Report dated August.
According to the COB, Treasury grossly violated the debt management procedures to pile unnecessary debts that will see taxpayers pay dearly.
The Margaret Nyakang’o’s office said project planning and approval should precede sourcing for funds. It added that borrowing can only be done when a programme or activity is already scheduled to commence.
“Review of the external debt payments shows instances where the government continued to pay regular loan commitment and management fees for loans that were yet to be disbursed long after the execution of loan agreements,’’ the report notes.
“Continued payment of obligations on undisbursed loans is not prudent and does not meet any value for money considerations”.
Disaggregation by external and internal debt reveals that the former grew by Sh492.67 billion while the latter grew by Sh393.1 billion.
Even so, despite the growth in the total loan portfolio, there was a decline in repayment compared to 2018-19 when two commercial loans amounting to Sh179.3 billion became due.
The actual expenditure of public debt amounted to Sh717.65 billion during the year under review, representing 92.1 per cent of the revised gross estimates and 45.6 per cent of the ordinary revenue for the year.
The revised allocation towards repayment of public debt in 2019-20 amounted to Sh778.85 billion representing a decline of 8.2 per cent from Sh848.3 billion allocated in the previous financial year.
This allocation comprised of Sh532.5 billion and Sh253.35 billion for internal and external debt respectively.
The internal debt comprised Sh301.81 billion for interest payment and Sh223.68 billion for redemptions. On the other hand, external debt comprised of Sh131.87 billion towards payment of interest and Sh121.48 billion for redemption.
This is not the first time Treasury has been called out for its debt accumulation.
In 2018, the International Monetary Fund chided the government, saying the structure and volume of the country’s debt have important implications for debt management.
IMF said that although private debt has been a small proportion of total external debt, debt service payments on this debt have been almost as high as those on official debt. Moreover, the terms of payment have become increasingly hard, suggesting that debt service payments will rise in the future.
“On the basis of these observations, Kenya’s debt management should concentrate on removing the possible debt overhang by reducing the debt burden through market-based instruments, available restructuring schemes and appeals for write-offs,” IMF said in 2018.
The findings by the budget office put to question rosy debt management policies published by the exchequer annually even as the country continues to wallow in debts that have since hit 64 per cent of Gross Domestic Product.
In the pursuit of reducing vulnerabilities to risks of public debt, the National Treasury formulated a debt policy in November last year that was to see the formation of two bodies to oversee international and local borrowing.
It was to delegate operational decisions on borrowing and debt management to the Public Debt Management Office (PDMO), which has since been created. It was also supposed to set up a Government Securities Auction Committee (GSAC) to review and approve auction results.
Yet the country’s annual borrowing spree is expected to cross the trillion-shilling line this financial year, with over Sh400 billion borrowed in six months since March to absorb coronavirus shocks.
In mid-May, the country received Sh106 billion from the World Bank, a week after the IMF disbursed a Sh79 billion facility to help Kenya fight the effects of Covid-19.
This is likely to push the country’s stock of debt to Sh7.7 trillion by end of June next year, only Sh1.3 shy of the Sh9.1 trillion limit set last year.
Treasury expects to borrow from both local and foreign investors had initially been estimated at Sh898 billion. The projected fiscal deficit, or budget hole, excludes grants from donors.
But in the draft Budget Review and Outlook Paper (BROP), this has been revised upwards due to the poor business environment that saw Kenya Revenue Authority collect less tax last year.
The country’s budget deficit is expected to rise to 8.9 per cent in 2020-21, which is higher than the eight per cent registered last year, further narrowing the country’s borrowing limit.
The poor debt management and high accumulation continue to expose the country to default, with major international agencies downgrading its creditworthiness.
In May, the IMF raised Kenya’s risk of debt distress to high from moderate due to the impact of the coronavirus crisis.