Kenya struggles with debt servicing as civil servants go without salaries

By Vincent Owino, NAIROBI Kenya

Kenya’s President William Ruto has admitted that his government is struggling to keep up with its debt servicing expenses, causing an unprecedented salary delay for senior civil servants, including members of parliament.

This was after opposition MPs last week revealed that public servants were yet to receive their pay for March and called for a probe into the country’s key financial institutions including the Central Bank of Kenya (CBK), the Kenya Revenue Authority (KRA) and the country’s ministry of national treasury.

Ruto, however, said that despite the ‘monumental debts’ that occasioned the delays, KRA had done a wonderful job in a difficult terrain to stay within revenue targets and that the state would not continue borrowing for recurrent expenditures such as salaries.

“We are going to pay salaries from our own resources; we will meet recurrent expenditure using our own resources,” Ruto said on Tuesday.

"We have moved our fiscal deficit to 5.7 percent of GDP. Our target is to take it to five percent next year, and 4.4 percent the following year, so that we can work within the parameters of the resources we can raise as we grow our own tax revenue,” he added.

Kenya’s National Treasury had revised the revenue targets for this financial year upwards by Ksh66.52 billion to Ksh2.53 trillion ($494 million — $18.8 billion) to offset the expected expenditure, which was raised by Ksh36 billion to Ksh3.39 trillion ($267.4 million — $25.2 billion) in the supplementary budget.

But despite missing the ordinary revenue targets for the first half of the fiscal year by over $340 million (Ksh45.8 billion), KRA says it is on track to meet the revised target of $16.3 billion (Ksh2.2 trillion).

In a statement on Monday, the taxman said Kenya has kept pace with revenue collection compared with previous years.

“As at the close of March 2023, Kenya’s revenue collection averaged 95.1 percent on original target and 93.4 percent on supplementary budget target, representing a collection of Ksh1.554  trillion ($11.54 billion) and a year-on-year eight percent growth,” KRA said.

The opposition disputed these figures, claiming KRA has so far collected at most just Ksh1.2 trillion ($8.9 billion), but the taxman maintains it has invested in modern technology to curb tax evasion and build tax yields.

But many Kenyans are questioning why the government is still ‘broke’ despite growing revenue yields.

The country’s opposition also questioned where the money saved from the withdrawal of subsidies late last year was redirected to, as the state still can’t pay salaries.

David Ndii, one of the president’s economic advisers, last week alluded to ‘wastefulness’ in government as a significant problem contributing to the cash crunch.

"The Kenyan government is extremely wasteful. There’s not a single day that I’m not exasperated by not just how wasteful it is, but by how deliberate it is and how unbothered people are,” Ndii said during an interview with Kenya’s Citizen TV on Tuesday last week.

Ndii’s comments came weeks after it emerged that the offices of the country’s president and his deputy had overspent their annual allocated budgets by at least five percent just months in office.

In the supplementary budget presented in Kenya’s parliament in February, the country’s treasury sought to raise the budget for the president’s office by 60 percent to Ksh13.8 billion ($102.49 million).

The deputy president’s budget was nearly tripled to Ksh2.63 billion ($19.53 million) while the State House budget was more than doubled to Ksh8.85 billion ($65.7 million) in the changes.

Independent policy experts have criticised Kenya’s government spending plans, saying they are not prioritising essential ‘high impact’ sectors that are key for economic growth and prosperity.

The Institute of Public Finance (IPF), a Nairobi-based think tank, last week warned that the economy is headed for a tougher run due to a growing burden of debt servicing, the government’s inability to implement austerity measures and a worsening global economic slowdown.

In a shadow budget statement last week, the IPF said planned reduction in budget allocations to agriculture and social protection could further hurt the economy and overall welfare of the population and should be aborted.

IPF also cautioned against additional funding to state agencies that record low absorption rates for development budgets as that is wastage of public funds on non-essential services.