This archive report was first published on 27 August 2021.
Kenya's debt crisis is a growing concern, with the country's debt portfolio having grown by Sh2.3 trillion since 2013. According to a report by the Institute of Public Finance Kenya (IPFK), the country's debt will be nearing the Sh9 trillion mark next year.
Analysts say the country's appetite for commercial loans to finance infrastructure projects is doing more harm than good. The report notes that commercial loans have a short grace period and high-interest rates, straining the State.
IPFK Head of Research John Nyangi said, “It is expected that by the end of June 2022, the figure will be Sh8.4 trillion nearing the debt ceiling of Sh9 trillion.”
The report highlights the country's failure to meet its revenue targets, which leaves the government with the option of borrowing or increasing taxes. In the financial year 2016/2017, the target was Sh1.311 trillion, while the State achieved Sh1.305 trillion.
For the FY 2017/2018, Treasury was short of Sh124.6 billion, while in the FY 2018/2019, the shortfall was Sh88.4 billion. For the FY2019/20, the taxman collected Sh41.96 billion less.
Kenya's debt service to revenue collection is 68 per cent, way above the threshold of 30. This means for every Sh100 collected by Kenya Revenue Authority, Sh68 goes to servicing debt. This figure will be Sh74 by 2022.
Kenya University scholar Peter Mwiathi said, “We can increase revenue by reducing taxes.” Mwiathi added that the manufacturing sector might not create jobs that would spur economic growth due to high taxes.
