Kenya Spent Ksh750 Billion on Interest Payments in One Year: Controller of Budget Report Reveals Deepening Debt Crisis
Kenya’s debt crisis has escalated dramatically, with recent data showing an alarming Ksh750.51 billion spent solely on interest payments for the fiscal year 2023-2024.
The latest report from the Controller of Budget reveals the country’s escalating debt, totaling Ksh1.59 trillion.
For context, this figure is nearly twice the amount allocated to counties in the equitable revenue share for the previous financial year, where Ksh385.42 billion was designated for counties.
The significance: Rising debt costs are putting severe pressure on Kenya’s budget, leading to a reduction in funds available for critical development projects. With a larger portion of the budget going to interest payments, less is available for infrastructure, education, and healthcare, which hampers long-term growth.
High borrowing costs also have broader impacts on businesses and households. Elevated interest rates on government securities encourage banks to invest in risk-free bonds instead of lending to businesses. This shift limits access to capital for businesses, stifling growth and job creation.
Furthermore, the burden of excessive debt repayments could lead the government toward default if resources fall short. This could trigger significant economic instability, similar to issues faced by other African nations in debt distress.
A deeper look: The report shows a significant increase in debt-related spending compared to the previous year. Government expenditure on debt has risen by Ksh44 billion from the fiscal year 2022-2023, indicating increasing financial pressure. Margaret Nyakang’o, the Controller of the Budget, attributes this rise to higher domestic debt payments, which have seen increased interest costs compared to external debt.
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The Ksh1.59 trillion expenditure breakdown includes Ksh834.85 billion for principal redemption and Ksh750.51 billion for interest payments. Additionally, Ksh1.58 billion was spent on commitment fees, and Ksh361.71 million was allocated to other charges.
Domestic debt alone accounted for Ksh830.22 billion, with Ksh534.22 billion spent on interest payments and Ksh296.01 billion on principal redemption.
Nyakang’o’s report highlights that servicing domestic debt has become more costly due to high interest rates on government securities. These securities have drawn significant investment from commercial banks and other investors due to their attractive returns and low risk while servicing external debt remains relatively cheaper.
The financial strain is exacerbated by recent findings from Auditor General Nancy Gathungu, who reported that Kenya paid Ksh1.44 billion in interest on foreign loans that have yet to be disbursed. These commitment fees are related to undrawn portions of loans, representing funds secured but not yet utilized.
As of June 2024, Kenya’s domestic debt has risen to Ksh5.41 trillion from Ksh4.83 trillion the previous year, exceeding the Treasury’s domestic borrowing target of Ksh851 billion.
This increase in domestic debt highlights the government’s increasing dependence on internal borrowing to fulfill its financial obligations, putting additional strain on the nation’s fiscal stability.
In the face of these growing financial pressures, President William Ruto is seeking further borrowing from China, raising concerns about the long-term viability of Kenya’s debt strategy.
Critics warn that the expanding debt burden could hinder the country’s economic development and worsen existing financial issues.
Kenya Spent Ksh750 Billion on Interest Payments in One Year: Controller of Budget Report Reveals Deepening Debt Crisis
