Kenya will hit its Sh9 trillion public debt ceiling within the next two years going by the projected revenue shortfall in the current and next fiscal years, coupled with the struggle by the government to control expenditure.
The National Treasury, in the draft 2020 Budget Review Outlook Paper, is projecting higher borrowing for both financial years 2020/2021 and 2021/2022, due to expected lower revenue, with the deficit seen at 8.4 percent and 7.3 percent in the years respectively.
This is likely to lead to public debt accumulating to touch the Sh9 trillion cap before the end of the 2022/23 fiscal year.
Parliament in October last year amended the law that previously restricted public debt at half of the gross domestic product (GDP).
The debt is already piling up quickly, having grown from Sh5.81 trillion in June 2019 to Sh6.69 trillion in June this year.
“If recent fiscal year trends are anything to go by, we expect negative surprise (higher fiscal deficits) to be realised. In addition, the net debt accumulation implies the public debt ceiling (Sh9 trillion) will be hit within the 2022/23 fiscal year,” said Nairobi-based investment bank Genghis Capital in a note on the budget paper.
The Treasury is expecting to raise its borrowing to plug the revenue deficit brought about by the negative effects of the Covid-19 pandemic on the economy.
The revenues target has been revised downwards by Sh110.3 billion and Sh215.5 billion in 2020/21 and 2021/2022 respectively, based on the trend of revenue performance in the latter part of the last fiscal year, which showed the effect the Covid-19 has had on the economy.
The targeted net domestic borrowing for the current year has thus been increased by Sh60.3 billion to Sh554.6 billion and external financing by Sh50 billion to cover the revenue shortfall.
In the 2021/2022 fiscal year, the Treasury is expecting to borrow a net of Sh917.3 billion, and a net of Sh932.6 billion in 2022/2023.
The rising debt has often raised questions over the government’s inability to cut expenditure, as it consistently falls short of its ambitious fiscal deficit targets.