Kenya: Rotich Ups This Year's Debt Target to Sh631.5bn

National Treasury Cabinet Secretary Henry Rotich.
14 January 2019

The Treasury has raised its borrowing target for the financial year ending June 2019 by Sh78 billion in the wake of below-par revenue collection in the five months to November 2018.

Treasury secretary Henry Rotich says in the draft 2019 Budget Policy Statement (BPS) that the external borrowing target for the current fiscal year has increased by Sh34 billion to Sh321.5 billion.

Net domestic borrowing is expected to contribute Sh310 billion, having initially been set at Sh267 billion in the June 2018 budget.

The new borrowing targets mean Kenya's debt pile will grow by Sh631.5 billion before accounting for loans taken by other State agencies.

The increase of the external borrowing target means that the Treasury is likely to tap the market for a large Eurobond or syndicated loan in the next few months, given that the government also needs to raise funds to redeem the maturing $750 million (Sh76 billion) five-year tranche of the 2014 Eurobond issue.

On the domestic front, raising the target means increased competition for funds with the private sector, which is already struggling to access bank loans due to the interest rate cap.

The Treasury says that it had by the end of November already borrowed a net of Sh139.4 billion locally and Sh77.1 billion externally to finance the budget deficit that is expected to stand at Sh635.5 billion (6.3 per cent of GDP) this fiscal year.

Kenya's total debt, whose sustainability has raised concerns, is set to hit Sh5.67 trillion at the end of this financial year as per the BPS projections.

"In nominal terms, total revenue collection including Appropriation in Aid (A.i.A) by November 2018 amounted to Sh633.7 billion against a target of Sh677 billion.

"The recorded shortfall of Sh43.3 billion was due to under-performance in ordinary revenue of Sh27.7 billion and A.i.A amounting to Sh15.6 billion," says the Treasury in the budget statement.

Below target

Mr Rotich says that excise taxes and import duty came in below target in the five months to November, while income tax from corporations recorded negative growth.

Income tax from employed individuals and VAT were however on target, and are expected to remain on projection in the second half of the fiscal year.

KRA is expected to improve its tax administration by enhanced scanning of cargo at points of entry into the country and use of third party information and iTax data to nab tax cheats and evaders.

The continued revenue under-performance coupled with rising public debt has seen the government come under pressure to cut its annual expenditure estimates.

Treasury projections for the 2019/2020 financial year are that the deficit will fall to Sh572.2 billion or five per cent of GDP.

Expenditure is expected to rise by 7.6 per cent to Sh2.7 trillion and total revenue by 13.6 per cent to Sh2.08 trillion.

In the 2019/2020 fiscal year, net domestic borrowing is expected to come down to Sh271.4 billion, with foreign borrowing coming to Sh306.5 billion.

The spending plans will see the country pump in Sh1.66 trillion into recurrent expenditure in the fiscal year that runs from July 2019 to June 2020, while development expenditure is pegged at Sh670.8 billion.

Counties' expenditure is projected at Sh371.6 billion, with an additional Sh5 billion going towards the contingency fund.

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