Kenya paid Ksh4.6 billion ($46 million) more in interest on loans than it had budgeted for in the first three months of the current financial year. This came as its revenue collections lagged, underscoring concerns over the country’s rising public debt.
The country paid out Ksh67.1 billion ($671 million) as interest against a target of Ksh62.5 billion ($625 million) for its total loans, which currently stand at 54 per cent of the GDP at Ksh4.4 trillion ($44 billion).
Revenue collections totalled Ksh345 billion ($3.45 billion), against a target of Ksh388 billion ($3.88 billion). The taxman collected Ksh320 billion ($3.2 billion) against a target of Ksh350 billion ($3.5 billion).
The underperformance in revenue collections was largely attributed to income taxes, which fell below target by Ksh17.1 billion due to retrenchments, job freezes and salary stagnation as firms reduce costs due to a harsh economic environment.
“The national government’s cumulative revenue collection for July to September amounted to Ksh345.6 billion ($3.46 billion) against a target of Ksh388 billion ($3.88 billion).
The underperformance is mainly due to shortfalls in income tax, excise duty and appropriations in aid collection,” said the National Treasury.
Kenya spent a fifth of its revenue collections on interest payments, equal to the same portion used on development. The country has been accumulating debt to fund ambitious infrastructure developments such as the standard gauge railway.
China was the biggest beneficiary of the huge interest payments with the government paying Ksh12.7 billion ($127 million) of which only Ksh2 billion ($20 million) accounted for the principal and Ksh10.7 billion ($107 million) being interest. China’s debt to Kenya has nearly doubled in the past two years to $4.7 billion.
The International Monetary Fund, which is sending it economic review team to the country mid this month, has already asked the government to go slow on infrastructural projects that have used up most of the debt and the productivity of some still in doubt.
Kenya’s finance secretary Henry Rotich has downplayed concerns over the country’s debt levels stating the country still has room to take in more debt up to 74 per cent of its GDP in view of the economic dividends of the infrastructure projects.
However, IMF’s representative to Kenya Jan Mikkelsen, said it was not sufficient to look at the threshold alone but whether the government could honour its obligations under shock. He said most defaults arose from political and institutional challenges and not economic performance.