Will Kenya spend 45% of revenue collected in 2018 on debt repayment?
Will KSh4.50 of every KSh10 collected in revenue be spent on debt repayment this year?
Kenya’s debt repayments are taking up a significant proportion of the revenue the country collects, a recent article in the Business Daily reveals.
According to the article by Constant Munda, debt repayment will take up as much as 45 percent of tax revenue collected, and this is linked to the Treasury’s “rising appetite for expensive short-term loans”.
Of the KSh1.44 trillion that the government expects to collect as revenue by the end of the 2017/18 financial year, the article adds, almost half — KSh658.2 billion — will go towards repayment of loans and short-term debts, making this the single largest expenditure.
Based on these figures, it appears that debt repayment is double what Kenya will spend on development — KSh351 billion — and more than eight times the Sh76.89 billion to be spent on infrastructure.
So the question is, will Kenya spend KSh4.50 of every KSh10 collected in revenue on debt repayment in financial year 2017/18?
PesaCheck has looked into the claim published in the Business Daily that Kenya will spend 45% of its tax revenue to pay debts in the current financial year and finds it to be TRUE based on the following facts.
The Kenyan Parliament allocated KSh621.76 billion to pay both domestic and external public debt in the 2017/18 financial year, according to the National Treasury in its December exchequer gazette report. This represents 41.4 percent of the KSh 1,499.50 billion collected in taxes.
At this rate, Kenya would have to spend KSh4.15 for every KSh10 collected as ordinary revenue towards paying taxes.
Additionally, the National Treasury late last year revised its total tax revenue estimates downwards from KSh1,499.50 billion to KSh1,440 billion. Expenditure on public debt repayment increased from KSh621.76 billion to KSh658.24 billion over the same period.
Therefore, PesaCheck finds that 45.7 per cent of the tax revenue collected in 2017/18 will go towards paying debt based on the revised figures (see table below). This confirms the claim by Business Daily that Kenya will spend 45% of its revenue, and KSh4.50 for every KSh10, on debt repayments.
However, it is important to highlight that the debt payment is not KSh223 billion more than the amount paid in the 2016/17 financial year, which the article claims to be KSh435.7 billion. Rather, the KSh435.7 billion for 2016/17 is what the Treasury disbursed to service debt obligations in that financial year.
The actual expenditure towards public debt in FY 2016/17 was KSh436.27 billion, which means the actual amount allocated for public debt in FY 2017/18 was KSh222 billion more than the amount allocated for the same in FY 2017/18.
Therefore, debt repayment will be nearly double Kenya’s combined development spending of KSh351 billion in the current year, and more than eight times the KSh76.86 billion spent on infrastructure. Furthermore, the allocation to debt repayment is also more than double the KSh306 billion allocated to the 47 counties.
Another important figure to look at is the debt to GDP ratio, which looks at the long-term ability of the country to pay debt. Meeting this debt obligation requires taxing of GDP over time.
Kenya’s public debt was 52 percent of GDP in 2016/17, and the Budget Policy Statement projects that it will be 53 percent by the end of 2017/18. While the debt to GDP ratio right now is below the IMF’s crisis threshold of 70 percent of GDP, the debt allocation (or payment) to total tax revenue ratio is where the problem lies.
The amount of revenue being spent on debt repayment is a good indicator of the risk of debt being sustainable or unsustainable in the near feature as compared to measures such as debt to GDP ratio.
The table above shows that both the public debt and tax revenue have been increasing, However, the public debt and debt repayment as a proportion of tax revenue are rising faster than revenue growth in the last three years. This could mean the country risks facing a serious debt vulnerability that could be unsustainable in the short term.
This means that the claim that Kenya will spend KSh4.50 of every KSh10 collected in revenue on debt repayment in the current financial year is TRUE.
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This report was written by PesaCheck Fellow George Githinji, a researcher and blogger with interest in devolution and public finance, and edited by PesaCheck Managing Editor Eric Mugendi. The infographics are by John Githinji, a Kenyan Graphic Designer interested in Art, Animation, Information Technology and photography. The report was produced with fact-checking support from the International Budget Partnership (Kenya).
PesaCheck, co-founded by Catherine Gicheru and Justin Arenstein, is East Africa’s first fact-checking initiative. It seeks to help the public separate fact from fiction in public pronouncements about the numbers that shape our world, with a special emphasis on pronouncements about public finances that shape government’s delivery of so-called ‘Sustainable Development Goals’ or SDG public services, such as healthcare, rural development and access to water / sanitation. PesaCheck also tests the accuracy of media reportage. To find out more about the project, visit pesacheck.org.
PesaCheck is a joint initiative of Code for Africa, through its local Code for Kenya chapter, and the International Budget Partnership (Kenya), in partnership with a coalition of local media organisations, with additional support from the International Center for Journalists (ICFJ).