Treasury understates debt by Sh609bn in new budget

 

Treasury Cabinet Secretary Ukur Yatani understated the actual amount Kenya will borrow to fund its budget by Sh609 billion as the government continues to paint a conservative picture of the debt nightmare it faces.

As he read the 2021/22 financial year budget on Thursday, Mr Yatani only provided details of how Kenya would generate the money required to fund 88 per cent of the Sh3.6 trillion plan.

The minister accounted for Sh3.03 trillion as he kicked the debt can down the road one more time.

Mr Yatani said the total government expenditure and net lending for the financial year that begins on July 1 would be Sh3.03 trillion, an amount exclusive of the Sh608 billion debt redemptions. 

Experts say to balance the budget, Mr Yatani failed to reveal this gap, which will only be filled by new loans to repay maturing ones.

This means the actual amount the country will borrow in the coming financial year will be Sh1.5 trillion, and not the Sh929 billion as revealed in the speech. 

For a budget to balance, the expenditure and financing must be equal. (Read expert analysis).

“All budgets have two sides: the expenditure and revenue. Both must be equalised to have a balanced budget,” Mr John Nyangi, the head of Research Institute of Public Finance, told the Sunday Nation. 

Get cheaper loans

“It is for this reason that the government and even individuals borrow to balance their budgets. Often, the expenditure outweighs the revenue. In this budget, the two sides do not seem to balance.”

Mr Yatani said the country only has a budget deficit of Sh929 billion, which would be financed by borrowing Sh271.2 billion from international markets and Sh658.5 billion from domestic sources. 

By borrowing 929 billion and collecting Sh2 trillion in taxes, the budget cannot balance.

He understated actual expenditure by Sh609 billion to hide the debt. 

Debt redemption refers to paying the principal and any interest due when the loan matures. 

Kenya has chosen the easy path of taking new loans to retire old ones and doing nothing about the principal. 

This worked well for as long as Kenya could get cheaper loans from the foreign market.

However, as more lenders saw the debt distress the country was facing, they started increasing interest rates on commercial loans and reduced the maturity period.

This has made paying interests very painful for the country. 

Mountain of debt

Borrowing Sh1.5 trillion means 42 per cent of the budget would be financed through debt. 

This will worsen dependence of the country on debt and donors and return Kenya into the deep hole President Mwai Kibaki dug the country out of. 

By March 2021, Kenya’s mountain of debt had grown to Sh7.3 trillion, three times the Sh1.8trillion the Jubilee administration inherited from the Kibaki regime in 2013.

Given that debt repayment is the first thing the country does before spending any other money, a huge loan bill leaves very little to finance critical services.

This is why the government is forced to continue borrowing until it hits the ceiling set by the National Assembly. 

Public debt-related expenditure has expanded by 22 per cent from Sh958 billion to Sh1.16 trillion, as it races to overtake what it costs to run the government for a year.

To run the government in the 2021/22 financial year, it would cost Sh1.27 trillion in recurrent expenses. 

Containment measures

The debt bill is almost double the Sh669.6 billion the government plans to spend on development, which is what leads to better infrastructure and improves services for the population. 

Mr Yatani said he heard concerns raised by Kenyans during consultations.

The concerns, he said, revolve around the rising debt and the impact of the Covid-19 pandemic and its containment measures.

The CS added that Kenyans are concerned about the high cost of Covid-19 treatment and availability of vaccines in addition to food security, the rising cost of living and unemployment levels among the youth.

“In addition, Kenyans raised concerns about the general levels of poverty and inequality as well as the increased public debt,” he said, adding that the 2021/22 budget would address the issues. 

Mr Tony Watima, an economist, says it is time the government spends within its means and puts a pause on borrowing to get itself off the slippery debt path.

“Treasury has been running budget deficits of more than six per cent for seven years consecutively, meaning the government has been seductively spending but being financed through heavy borrowing,” Mr Watima said.   BY DAILY NATION