Kenya’s national debt rose to more than Ksh7.71 trillion ($70.73 billion) in June as inefficient parastatals cost taxpayers an additional Ksh1.65 billion ($15.13 million) in loan commitment fees.
The national debt is 52.1 percent and 47.9 percent, external and domestic respectively.
The ballooning debt has pushed the National Treasury into borrowing from the domestic market through treasury Bills and Bonds to pay off maturing foreign obligations in violation of the Public Finance Management (PFM) law, according to the Office of the Controller of Budget (OCOB).
The Controller of Budget Margaret Nyakang’o through a report presented to the Senate Standing Committee on Finance and Budget in August, said as best practice, the government should not borrow to repay loans as this contravenes Article 201 (c) and section 15(2)(c) of the PFM Act (2012).
These provisions of the PFM law state that ‘’over the medium term, the national government‘s borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure.
“National Treasury should therefore ensure all requests are in line with Article 201 (c) and section 15(2) (c) of the PFM Act (2012),” said Dr Nyakang’o.
According to the report Kenya borrowed Ksh1.32 trillion ($12.11 billion) in 12 months bringing its total debt to Ksh7.71 trillion ($70.73 billion) as at June 30 2021 while in the current financial year (2021/2022), the government expects to borrow Ksh1.41 trillion ($12.93 billion).
In July alone, the government borrowed Ksh67.85 billion ($622.47 million) from the domestic market.
In the budget for the 2021/2022 fiscal year, the National Treasury has allocated Ksh1.16 trillion (36.6 percent) towards the repayment of national debt compared with 34.7 percent (recurrent spending), 12.2 percent (development spending) and 11.6 percent (County governments).
The report shows that as of June 30, the government paid Ksh1.65 billion ($15.13 million) in commitment fees for loans whose agreements have been signed but the money not yet used by the implementing agencies.
“This shows the inefficiency of the implementing agency that has been granted the loan in their effective absorption of the funds in completion of their projects,” says the report.
The implementing agencies include Kenya Power, Kenya National Highway Authority, Athi Water Services Board, Ministry of Energy, Ministry of Roads and Public works, Ministry of Mining, Kenya Electricity Generating Company, Coast Water Services Board and Ministry of Water.
“We recommend that these loans should be cancelled and this will reduce the loan book balance and consequently save taxpayers payments on the commitment fees.”
In June, the IMF revealed through its country report No 21/137 that Kenya is negotiating with rich countries with hopes of extending its debt repayment moratorium by another six months to generate more resources to finance its record Ksh3.6 trillion ($33.02 billion) recovery budget for the 2021/2022 fiscal year.
The National Treasury is seeking to raise $723 million in additional savings through the defered loan repayments plan under the Debt Service Suspension Initiative (DSSI) this year .
“While financing under the DSSI initiative in H1-2021 is less than originally envisioned, the authorities have requested extension through end-2021, providing significant additional near-term financial support,” said IMF.
“The authorities are following up on DSSI creditor participation under the initiative and engaging the donor community to secure grants or additional concessional lending to cover potential Covid-19 vaccination costs.”
DSSI is an initiative engineered by both the IMF and the World Bank by urging the G20 countries to help poor countries concentrate their resources on fighting the Covid-19 pandemic and safeguard the lives and livelihoods of millions of the most vulnerable people
In January, Kenya secured deals to suspend debt service with the Paris Club of countries and other creditors, including China, covering the six months to the end of June this year.
However, in April, Kenya’s National Treasury applied for an extension of the debt repayment moratorium from rich countries beyond the June 30, deadline, arguing that poor nations are yet to recover from the Covid-19 pandemic.