The Treasury last month surpassed its annual domestic borrowing target by Sh49.2 billion to plug revenue shortfalls as tax collections continued to fall below targets, newly released data show.
Net domestic borrowing hit Sh446.6 billion in May – one month before the end of the fiscal year – against the annual target of Sh397 billion, according to the latest official data.
The Kenya Revenue Authority (KRA) has since the beginning of the current financial year been struggling to meet its revenue target, forcing the government to borrow locally to fill the financing gaps.
The KRA had in the 11 months to May collected Sh987 billion, translating to an average Sh89 billion a month and more than Sh200 billion below the annual target of Sh1.2 trillion just a month before the end of the fiscal year.
The lag in revenue collection may also be behind the Treasury’s decision to backdate several taxes that were introduced through the Budget Speech in June.
A number of local and international agencies have expressed concern over Kenya’s ever rising appetite for borrowing to finance the government but the Treasury insists that the debt level is still manageable.
Kenya’s domestic debt stands at Sh1.76 trillion or slightly more than half the total debt of Sh3.2 trillion.
“Increasing public borrowing may result in undesirable fiscal consequences such as high interest rates, inflation and overburdening future generations,” Agnes Odhiambo, the Controller of Budget warned in a report published late last year.
The acceleration in domestic borrowing was mainly the result of continued growth of obligatory expenses such as debt repayment and pension payouts, forcing the government to allocate them extra funds.
The Treasury’s data indicate that by the end of May, Kenya had spent Sh387 billion on public debt servicing against the annual target of Sh397 billion.
The Treasury has since revised the debt servicing budget to Sh417 billion – meaning more money is required to meet the debt obligations.
The increase in debt repayment budget by Sh20 billion is attributed to the shilling’s loss of value against the dollar (for foreign loans) and high domestic interest rates regime (for local borrowing) in the first half of the financial year.
The local currency hit a low of Sh106 in September compared to Sh90 in January last year. It is currently trading at Sh101 to the greenback.
Official data also show that the Treasury had by end of May overshot its pensions budget, having paid out Sh44 billion against the Sh38 billion it had planned to spend on retired civil servants.
Credit: Business D