Brace yourselves for a new debt ceiling for Kenya this fiscal year

Kenya’s public debt has been increasing owing to the government’s ambitious development agenda evident in the national budgets over the past decade.

Photo credit: Shutterstock

What you need to know:

  • We have a government that only listens to its echoes of praises and not bothered by pulses of reality.
  • The government needed to dedicate more than 10 per cent of the budget to the Covid-19 response.

The abnormal is uncomfortably becoming normal. One of the best grading the Jubilee administration scores highly is its tone-deaf attitude in governance.

We have a government that only listens to its echoes of praises and not bothered by pulses of reality. We are in an abusive relationship with a government that is unconcerned about its people.

When the global pandemic hit, countries immediately began diverting money to help vulnerable citizens.

It took our government more than three months to respond – and that was after public outcry. Some of us tried explaining why urgent government response was needed but officials turned a deaf ear.

When the government was announcing tax waivers in June, the unemployment rate from March had doubled from 5.4 to 10.4 per cent.

The government needed to dedicate more than 10 per cent of the budget to the Covid-19 response. That is how Kenya’s economy would bounce back.

The kind of response needed to cushion Kenyans and businesses against the effects of the pandemic was redistributive.

Conduit for theft

What we saw was less than one per cent allocated to the coronavirus pandemic response, with most of the money channeled to infrastructure, a known conduit for theft.

The recently released World Bank Economic Update shows the pandemic has hit livelihoods badly.

An additional two million Kenyans have been sucked into grinding poverty.

It clearly shows how Jubilee’s infrastructure-led economic growth is perpetuating inequality – the malaise that leads Kenyans into asking: “Will we eat the GDP?”

The government says the tax cuts announced at the start of the pandemic will be abolished on January 1.

Corporate tax will revert to 30 per cent from 25 per cent. That will also be the case with individual income tax while Value Added Tax VAT will revert to 16 per cent from 14 per cent.

Only tax exemption for those with a monthly salary of Sh24,000 and below has been retained.

Families have limited purchasing power yet the government is unconcerned enough to increase their tax burden.

The tax relief reversal comes after the National Treasury wrote to the National Assembly and Senate, informing them of an additional expenditure in this financial year.

That means a supplementary budget to regularise this expenditure is expected any time soon.

The biggest beneficiary in the additional expenditure is the loss-making Kenya Airways, which was given Sh10 billion.

According to the Kenya Gazette published on August 21, out of Sh355.7 billion allocated for development in the Executive, only the Ministry of Housing and Urban Development received money.

The ministry was given Sh1.5 billion instead of the budgeted Sh 8.5 billion.

The gazette notice also says county governments did not receive money at the time.

Governors are complaining of not receiving critical allocations in this financial year.

Could the Jubilee government then be surviving on an International Monetary Fund (IMF) loan tab?

The August 21 gazette notice said Kenya had a balance of Sh21 billion Covid-19 funds held in IMF Rapid Credit Facility account and had now applied for more in November another $2.3 billion loan from the Fund to help its economy recover.

Unfortunately, Kenya is on a debt roller-coaster.

Treasury Cabinet Secretary Ukur Yatani recently misled Parliament when he said the country’s total debt stands at Sh7.12 trillion.

He was to be contradicted by Treasury’s Post-Covid Economic Recovery Strategy Paper published last month.

The paper says Kenya’s public debt was Sh7.06 trillion in August, amounting to 69.2 per cent of the GDP.

This, together with the committed undisbursed debt of 1.35 billion translates to a total of Sh8.41 trillion against a ceiling of Sh9 trillion.

Kenyans should know that what this means is that Parliament will have to review the ceiling in the next financial year.

Mr Watima is an economist