Debt repayments to eat up Ksh.66 of every Ksh.100 collected
Published on: June 03, 2021 04:16 (EAT)
Debt servicing costs will gobble up Ksh.66 for every Ksh.100 collected as revenue by the government in the new financial year commencing in July. This is according to a new analysis of public debt servicing (PDS) expenses by the Parliament Budget Office (PBO). In the new financial year, the will use Ksh.1.17 trillion to meet pending debt obligations with combined interest payments and debt redemption’s rising by 22 per cent from the current fiscal year to June 30. In contrast, debt servicing costs accounted for just 44 per cent of government revenues implying only Ksh.44 for every Ksh.100 bob was deployed in meeting the debt obligations. Domestic debt servicing at Ksh.768.7 billion will account for the bulk of debt servicing expenditures at 73 per cent. The PBO expects higher debt servicing costs to pile more pressure on the fiscal deficit even as the government plans more borrowing to feed an expanded Ksh.3.6 trillion plan. At the same time, the independent Parliament office has been dismayed by the debt servicing costs which are now greater that development expenditures. “It is also observed that the increase in debt servicing expenses has outpaced the allocations for development expenditure, for which debt is meant to finance, by over 200%, implying that borrowing for development expenditure financing might no longer be a viable fiscal principle,” the PBO stated. “The government should put in place mechanisms to substitute this with alternative financing such as Public Private Partnerships, particularly for large infrastructure expenditure.” Domestic debt interest payments at Ksh.361 billion will represent 75 per cent of total interest payments. Meanwhile, domestic debt redemption costs at Ksh.346 billion having declined by Ksh.15.5 billion from last year. On their part, external debt redemption’s have swelled by Ksh.124.4 billion to total Ksh.262.1 billion likely from a pileup of arrears brought forward by the Debt Service Suspension Initiative (DSSI). Debt servicing costs are tipped to remain elevated over the medium term as the government remains on a borrowing spree the plug the gap to budget financing. In the new financial year, the National Treasury is projected to borrow Ksh.930 billion to meet the gap to government spending. Total financing is nevertheless expected to cool-down to an estimated Ksh.613.8 billion in the year closing in June 2025.