What you need to know:
- Citizens don’t feel the effect of debt directly like taxation, which makes it very attractive to politicians.
- The national debt is here to stay; managing it sustainably should be our concern.
Kenya’s wage bill last financial year was Sh795 billion, of which Sh322 billion were allowances. In the current 2020/2021 financial year, the Kenya Revenue Authority (KRA) is expected to collect Sh1.5 trillion in taxes.
Of the collected revenue, debt servicing will consume Sh1 trillion, devolution will take another Sh330 billion while development is budgeted at Sh620 billion.
In terms of priority, the government must first pay all debt before even touching a coin to pay salaries. Let’s do the math: One, the government spends Sh1 trillion on debt servicing, leaving a balance of Sh1.745 trillion; that is, assuming the wage bill remains unchanged.
Two, the government pays wage bill and is left with Sh950 billion pending bill to pay for devolution and development. Remember, however, that of the wage payments, Sh295 billion was borrowed since all that KRA collected has been consumed.
Three, the government borrows to finance devolution and development in addition to what was borrowed to pay wages (295+330+620=1.245 trillion). Most of the loan amount is domestic borrowing, obviously lent to it by local banks because “the government cannot fail to repay”.
Now this is a narrative that is crystallising into a lie. Why? Because the government will coerce local banks to roll over its loans rather than default on paying salaries to civil servants. Since banks know this, they will stop lending to the government, preferring to deal with the private sector, ‘where the action is’ — employment, growth, tax revenue, innovation, et cetera.
Even then, the national debt is simply unsustainable and the government will attack the wage bill, starting with allowances.
And the vicious cycle continues.
Kariuki Muiri, Nyeri
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Richard Kihara need not lose sleep his over a debt crisis for the next president, who will be elected in 2022. He has options.
One, Parliament will simply raise the debt ceiling to above Sh9 trillion. Just watch this space. Two, the citizens don’t feel the effect of debt directly like taxation, which makes it very attractive to politicians.
Debt can be spread across time or even generations.
Conclusion: The national debt is here to stay; managing it sustainably should be our concern.
X.N. Iraki, Nairobi
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The Daily Nation editorial (Sept. 25) supported the plea by President Uhuru Kenyatta to the UN calling on the developed countries to forgive part of their loans to poor countries like Kenya.
But when the leaders borrowed and were told to slow down the debt pile-up, they retorted that “we will continue to borrow”.
Githuku Mungai, Nairobi