Will Kenya Spend Half of its Tax Revenue in 2019 on Debt Repayment?

Will KSh50 out of every KSh100 generated in total tax go towards paying debts in FY 2018/19?

Business Daily reports that debt repayments will take up half of the taxes in the current financial year (FY) 2018/19.

According to the article published in May 2018, the taxpayers will spend KSh870.52 billion on debt repayments in the year starting July 2018. This represents a growth of KSh262.22 billion over the revised KSh608.40 billion repayments for the financial year 2017/18. The paper reports the FY 2018-19 budget as the source of the data.

“The spend will be half of the KSh1.74 trillion that the government expects to collect in ordinary revenue. This means about KSh50 out of every KSh100 generated in total tax and other collections such as fees and commissions will go into servicing the burgeoning public debt that hit KSh4.57 trillion last December.” (sic)

The article says further the payments for debt will be nearly two and a half times (233 per cent) the KSh372.74 billion allocated to the 47 county governments in FY 2018-19 and dwarfs the KSh610.2 billion meant for development projects.

I have investigated the claim that debt repayments will take half the taxes in the current financial year 2018/19 and find it to be TRUE. The facts are as follows.

In the last financial year 2017/18, debt repayment was estimated to take up as much as 45 per cent of the tax revenue collected. The National Treasury late last year revised its total tax revenue estimates downwards from KSh1,499.50 billion to KSh1,440 billion.

The estimated expenditure on public debt repayment increased from KSh621.76 billion to KSh658.24 billion over the same period. This represents 45.7 per cent of the tax collected. At this rate, Kenya would have to spend KSh4.15 on every KSh10 collected as ordinary revenue towards paying taxes.

Public debt is the money the government borrows to fund its programmes and projects when it cannot collect enough to finance its full annual budget. Therefore, public debt is how much a country owes to lenders, both domestically and externally, other than itself.

A financial year in Kenya begins in July of the current year and ends in June of the coming year. It is a period the government uses for accounting and budgeting purposes, and for financial reporting. The current financial year 2018/2019 (or 2018/19) began on 1st July 2018 and ends on 30th June 2019.

The total public debt has grown to KSh4.88 trillion by March 2018 according to the Central Bank of Kenya.

In the current financial year 2018/19, the allocation for debt repayments is KSh870.62 billion according to the FY 2018/19 budget estimates. (And not KSh870.52 billion as reported by Business Daily). This figure represents 50 per cent of the total projected ordinary revenue at KSh1.74 trillion.

This means that the claim that half of the tax revenue collected this financial year will go towards debt repayments is true.

EVERY KSH50 OUT OF EVERY KSH100 GENERATED IN TOTAL TAX WILL GO TOWARDS PAYING DEBTS IN FY 2018/19.

The amount allocated for debt repayment is 233.6 per cent more than the counties’ equitable share and conditional grants in the financial year 2018/19 of KSh372.74 billion.

Counties’ equitable share is the amount allocated to the 47 counties from the national share of revenue (equitable share). Any additional allocations from the national government’s share of revenue and development partners to the equitable share are the conditional grants.

The amount allocated for debt repayment in FY 2018/19 is also more than the financial allocation for development expenditure of KSh610.2 billion for the national government in the FY 2018/19.

In conclusion, the amount of revenue the government spends on debt repayment is a good indicator of the risk of debt being sustainable or unsustainable in the short term.

Based on a previous fact check on the revenue spent on debt repayment in the last financial year 2017/18, we see that public debt and tax revenue have been increasing. However, the public debt and debt repayment as a proportion of tax revenue are rising faster than revenue growth in the last few years.

This means that the country risks facing a serious debt vulnerability that could be unsustainable in the short term.

(Thanks to John Kinuthia @JKinuthia08 for the fact-checking support)

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George Githinji
George Githinji
Githinji is passionate about devolved governance and public finance. He also comments on topical issues in Kenyan politics and society. In addition, he manages the @UgatuziKenya platform.

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