The country’s stock of public debt crossed the Sh9 trillion mark for the first time in December last year, bringing it closer to the Sh10trillion ceiling set by Parliament in June last year.
According to data from the Central Bank of Kenya (CBK), public debt reached Sh9.145trillion in December, consisting of Sh4.472 trillion in domestic debt, Sh37.88 trillion in publicly guaranteed debt, and Sh4.673 trillion in external debt.
The National Assembly raised the public debt limit to Sh10 trillion in June of last year, allowing the government to borrow Sh846 billion to plug the budget deficit in the fiscal year 2022/2023.
Treasury intends to plug the budget deficit in the coming fiscal year with external loans totaling Sh198.6 billion and domestic loans totaling Sh496.6 billion.
In addition, the government is moving forward with plans to replace the nominal debt ceiling with a debt anchor expressed in present value terms as a ratio of GDP.
In December of last year, Treasury told the International Monetary Fund that the new framework will boost the credibility of the government’s strategy to reduce debt vulnerabilities by increasing transparency and accountability about the path to the medium-term anchor.
Debt service expenses have risen in recent years, from Sh850.01 billion in fiscal year 2021/22 to Sh1.3 trillion in fiscal year 2022/2023, and are expected to reach Sh1.8 trillion in fiscal year 2024/25.
“Increased expenditure on public debt interest payments coupled with growth in expenditure on operations and maintenance have been some of the drivers of the accelerated growth in recurrent expenditure relative to economic output,” said PBO.
Debt service expense has risen from 49 percent of ordinary revenue in 2019/20 to 65 percent in 2022/23.
This suggests that generated revenues are increasingly being used to pay off public debt, which is a non-productive expenditure, rather than meeting productive expenditure needs.
“Further the share of ordinary revenue used to service interest payments on the public debt increased from about 15 percent in 2013/14 to around 30 percent in 2021/22,” it said.
President Ruto in a move to ease spending pressures in his first budget wants to significantly increase revenue collection, stop subsidies on fuel, electricity and food and accelerate reforms in state owned entities to end their reliance on government funding.
Treasury expects to collect Sh2.89trillion in revenues in 2023/24 to fund its spending, a 15.1 percent increase from the Sh2.51trillion estimated to be collected in the current financial year which will be supported by a retinue of new tax measures.