Kenya plans to cut spending to lower its budget deficit to internationally acceptable levels in the next five years, the Treasury has said in a budget document, after investors criticised the fiscal gap.
The deficit grew to 8.9 per cent of gross domestic product (GDP) in the financial year to last June. The Ministry of Finance said it would be reduced to six per cent in the financial year from next July and to three per cent by 2022.
“We are clearly conscious of our limited fiscal space,” Henry Rotich, Treasury minister, said in a draft budget policy statement seen by Reuters on Monday.
Kenya has been criticised for failing to cut borrowing after ramping up debt in the past five years.
The funds went to fund a range of ambitious infrastructure projects, including a modern railway line from the Mombasa port.
Contracted debt
President Uhuru Kenyatta’s government contracted debt from international capital markets, nations such as China and other entities like the African Development Bank since 2013, to build much-needed roads, bridges and power plants.
That drove up total public debt to more than 50 per cent of GDP, angering citizens who accuse the government of mortgaging future generations, and investors who said the debt was undermining Kenya’s economic credentials.
Kenya will use Sh4.50 for every Sh10 collected at taxes in the year to June for debt payments, underlining the burden of the mounting government borrowing.
The Treasury data shows that it will pay Sh658.2 billion for loans in the current financial year, making it the single largest expenditure and 45 per cent of the Sh1.44 trillion that Kenya Revue Authority is expected to collect from taxes in the period to June.
The debt payment is Sh223 billion more than the Sh435.7 billion that taxpayers paid in the year ended June in what is linked to the Treasury’s rising appetite for expensive short-term loans.
Sh4.48 trillion debt
The public debt stood at Sh4.48 trillion in September, up from Sh3.5 trillion in March 2015 and Sh2.1 trillion in November 2013.
The debt repayment will be nearly double Kenya’s combined development spend of Sh351 billion in the current year and more than eight times that of infrastructure like roads whose spend is expected at Sh76.89 billion.
It is more than double the Sh306 billion allocated to the 47 counties and Sh14 billion for revamping infrastructure in schools, colleges and universities.