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State borrows from wealthy Kenyans to pay loans

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Margaret Nyakang’o

The government has resorted to borrowing from private citizens and moneyed companies to raise funds to service foreign debt.

Controller of Budget Margaret Nyakang’o on Thursday revealed the country’s debt has hit an all-time high with the government now unable to service the loans from its ordinary revenue.

Kenya’s debt currently stands at Sh7.71 trillion.

On Wednesday, Central Bank of Kenya Governor Patrick Njoroge called for immediate action to manage the ballooning debt lest it bring down the economy.

In a new report tabled before a Senate committee, Nyakang’o revealed that for every Sh3 collected by the Kenya Revenue Authority, Sh2 goes towards the repayment of the debt.

The Finance and Budget committee chaired by Kirinyaga Senator Charles Kibiru is inquiring into the status of public debt.

As the Treasury continues to borrow and spend a fortune on repayment, it emerged the government has spent Sh1.65 billion as of June 30, 2021 on commitment fees on loans that it has not utilised or whose agreement has not been signed.

The revelations emerged even as the Commission on Revenue Allocation turned the heat on Parliament for abetting the heavy borrowing by the National Treasury.

“Parliament plays a critical role in the approval of the budget and this is where vigilance is required to ensure fiscal deficits are sustainable at the budget approval stage,” CRA chairperson Jane Kiringai said.

Kiringai said Parliament needs to set the bar for transparency and debt management, interrogate Treasury’s annual borrowing plans and interest rates at which the government is borrowing.

Parliament should also interrogate the use of the loans, she said.

The commission accused the legislators of failing to check the borrowing and curbing huge budget deficits that have provided room for more borrowing.

According to the report by the COB, the Treasury borrowed Sh67.85 billion in the month of July alone—the first month of the 2021-22 financial year.

Shockingly, Treasury spent Sh162.37 billion in debt repayments against Sh253.4 billion generated by the taxman during the month.

This translated to 64.1 percent of the ordinary revenue.

“The COB recommends renegotiating debt repayment agreements and slowing down of borrowing to ensure tax revenue collected is geared towards financing other components of the budget,” she said.

The crisis, the COB disclosed, has forced the state to raid the domestic market with borrowing from non-bank entities—private citizens and companies—emerging as the new catch.

“That (non-bank entities) means individuals. All you need is an account at the Central Bank. You have to register with the Central Bank then they give you a number for investment. You can invest either as a company or individual. It is grouped as non-bank,” Nyakang’o told the Star after the meeting.

Nyakang’o cited a case on August 16, 2021 where the government borrowed Sh15.03 billion (T-Bonds) from the domestic market to repay foreign loans.

“At a best practice, the government should not borrow to repay loans,” the COB told the committee.

Similarly, on June 30, 2020 the Treasury raised Sh70.16 billion from proceeds of Sovereign Bonds relating to the State Departments of Infrastructure, Water, Sanitation and Irrigation, Housing, Urban Development, and ICT and Innovation.

The Treasury then made a request totalling Sh61.52 billion thus contravening Article 201(c) of the Constitution and section 15 (2) (c) of the PFM Act that limits borrowing to development expenditure.

“Over the medium term, the national government’s borrowing shall be used only for the purpose of financing development expenditure and not for recurrent expenditure,” the Act states.

In the current financial year, debt repayment is budgeted at Sh1.16 trillion or 36 per cent of the total budget.

This is the highest component of the budget.

Other components are; recurrent at Sh1.10 trillion (34.7 per cent), development at Sh389.22 billion (12.2 per cent), pensions and gratuities at Sh153.63 billion (4.8 per cent), county governments at Sh370 billion (11.6 per cent) and SAM (salaries, allowances and maintenance) at Sh4.41 billion or 0.1 per cent.

In the last fiscal year, the government borrowed Sh1.20 trillion representing 90.9 per cent of the targeted borrowing for the year.

As of June 30, 2021, the total public debt stood at Sh7.71 trillion. This includes Sh4.01 trillion or 24.1 per cent from external debt and Sh3.69 trillion or 47.9 per cent domestic.

Commercial banks constitute 15.5 per cent (Sh15.5 per cent) of the eternal debt with multilateral borrowing making the huge chunk of the outside borrowing at 21.5 per cent or Sh1.65 trillion.

Non-bank borrowing makes up 22.9 per cent or 1.1765 trillion of the Sh3.69 trillion borrowed from the domestic market.

The COB and CRA recommended operationalization of the sinking funds to enable the state to properly manage and repay the debt.

-The-Star

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