The debt servicing cost has continued to rise. The latest revenue and net expenditures for the nine months of 2022/2023 FY ending March 31, 2023 show the debt-burden to total revenue stood at 56.4%.
The total debt service in FY’2021/2022, according to the National Treasury, increased by 17.6% to Sh917.8bn, from Sh780.6bn in the 2020-2021 fiscal year. Equally, debt service to revenue ratio was estimated at 47.9%, 17.9% points higher than IMF’s recommended threshold of 30.0%, but 2.1% points lower than 50% debt service to revenue ratio recorded from 2020 to 2021.
This signals difficult years ahead. The numbers are not rosy. The growth of public debt at a 10-year compound annual growth rate of 17.7% to Sh9.1trn in December 2022, has, for example, outpaced economic growth that has averaged 4.5% for the last 10 years.
Financial experts have warned about the dangers of endemic reliance on excessive borrowing by the Government. Their fears, well founded, are that there would be a liquidity crisis when Government overstretches the elasticity of her borrowing and taxation capacity.
Government smoothens its liquidity through borrowing to make up for revenue shortfalls. However, due to the mounting risks, ours is struggling to borrow. The few lenders that are still risking to lend to the Government are doing so at a high cost. We have ended up in a liquidity crisis because our tax revenues can’t meet our expenditure, and we can’t borrow to plug the deficit.
The current state of affairs, painful as it is, will not end soon. However, the only way to get out is to restore the fiscal space by revamping, first, the production, taxation and, lastly, the borrowing capacities.
Canada faced similar fiscal difficulties in the 1990s. It was a period marked by restructuring and downsizing of its civil service. While this option remains viable for Kenya in the wake of its current financial crisis, we must, first, focus on cutting Executive fiscal excesses especially State grandeur. Secondly, we need to enhance better governance and accountability. We must tame grand corruption through prevention and law enforcement.
High fiscal deficit is attributable to higher growth in expenditure volumes relative to revenue collections, creating the need for excessive borrowing. The Government can do more. It can introduce austerity measures, while limiting expenditure on big infrastructure projects with either high social impact or high economic returns.
This will create opportunities for millions of households.
