Increased allocation for debt payment pushes Kenya’s budget to Sh3.62 trillion

The National Treasury has more than doubled its allocation for debt repayment and pensions, pushing up the total budget for the next financial year to Sh3.63 trillion.

A summary of the estimates for the 2020-21 financial year that Treasury presented to the National Assembly on Thursday showed that the budget for consolidated fund services (CFS), which includes spending on interest on debts and pension payments, nearly doubled from an earlier estimate of Sh697.6 billion to Sh1.3 trillion.

In February, Treasury had projected a budget of Sh3.01 trillion for the next financial year. A big chunk of the CFS, over 70 per cent, comprises domestic and foreign interest payments.

About Sh560 billion will be used to repay interest, pension has been allocated Sh137.2 billion while the contribution from Treasury for the new Civil Service Fund will be Sh20.8 billion.

There is another Sh444 billion captured under “Other CFS” which is most likely an allocation for the redemption of maturing loans, both external and domestic.

The government projects that it will get Sh2.03 trillion in taxes and levies such as fines and fees. Ordinary revenue – taxes – is estimated at Sh1.77 trillion.

Recurrent expenditure will take up Sh2.019 trillion while development expenditure by ministries will take up another Sh624.5 billion.

Counties have been allocated Sh370 billion as part of the equitable share.

To plug the budget deficit, the government will borrow a total of Sh1 trillion, excluding grants from financial partners, which will be used for development projects.

This comes at a time when there are plans by the National Treasury to borrow up to Sh500 billion from the Eurobond market as part of its plan to refinance some expensive maturing loans to ease the debt burden.

National Treasury Cabinet Secretary Ukur Yatani told lawmakers that the negative effects of the Covid-19 pandemic had affected the country’s export and domestic resources.

This translated into difficulty in repayment of debt, especially external loans that are paid using hard currency earned through export earnings.

“However, the pandemic is expected to ease with the global vaccinations efforts,” said Yatani.

Export and domestic earnings had declined even before the pandemic. This in turn led to deterioration in debt service to revenue ratio and exports to external debt service ratio.

As a result, the country’s risk of default jumped from moderate to high, according to a debt sustainability test done by the IMF and the World Bank.

Mr Yatani has made it clear that going forward, Treasury will strive to lessen the debt burden by replacing most of the expensive loans with cheaper ones such as those from IMF and the World Bank.

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