Debt repayment eats up 55pc of taxes in six months

Kenya spent 55 per cent of tax collections on debt repayment in the six months to December, underlining the pressure on public coffers.

Between July and December 2022, the government spent Sh526 billion to pay domestic and external creditors, a massive 32.8 per cent or Sh130billion rise from the Sh396 billion in a similar period the previous year, new data by the Controller of Budget (COB)shows.

This indicates that for every Sh100 that the Kenya Revenue Authority (KRA) collected in the period, an average of Sh55 went into servicing domestic and foreign debt.

The share of tax receipts eaten up by debt servicing costs in the six months to December 2022, is higher than the average 45 per cent used in the corresponding months of 2021.

Data by the COB show that KRA collected Sh952.6 billion between July and December 2022, with the total public debt service amount being 55 per cent of that (Sh526 billion).

In a similar period in 2021, the taxman collected Sh868.8 billion in taxes with the government spending Sh396 billion on debt service.

This means that while taxes have grown by only 9.6 per cent comparing the two periods, debt service costs have grown by a rate more than three times that of taxes- 32.8 per cent.

Debt service rise

The rises in debt service costs between July and December 2022 average more than Sh21.6 billion in additional monthly spending on public debt service, even as the Treasury last month warned of growing debt pressure as many domestic and external instruments are expected to mature over the next three years.

The COB report on national government budget implementation for the first half of 2022/23 shows that while the exchequer issued Sh503.8 billion towards the public debt account at the Consolidated Fund Services (CFS), cumulative expenditure on public debt was Sh526.02 billion.

“The expenditure comprised Sh235.49 billion towards principal redemptions, Sh289.76 billion towards interest payments, Sh680.03 million for commitment fees, and Sh97.73 million for other charges,” the COB stated. The government used Sh178.56 billion to pay external creditors and Sh347.46 billion to pay domestic creditors, leaving public debt eating into 88.6 per cent of the total CFS expenditure.

“External debt servicing comprised Sh111.54 billion for principal payments, Sh66.24 billion for interest payments, Sh680.03 million for commitment fees, and Sh97.73 million for other charges. The total domestic debt payment consisted of Sh123.95 billion and Sh223.51 billion for principal and interest payments, respectively,” the COB stated.

Treasury allocated Sh1.39 trillion towards debt service for the current financial year, up from the Sh1.17 that was originally allocated in the 2021/22 budget. Of the Sh1.39 trillion, Sh702.47 billion was allocated for principal redemptions and Sh690.65 billion for interest payments.