The rate of State borrowing from the local market accelerated during the first nine months ended March, with fresh debt hitting Sh424.7 billion compared to Sh274.6 billion of new borrowing in the same period a year earlier.
The new borrowing debt took domestic borrowing to Sh5.256 trillion at the end of March 2024, up from Sh4.832 trillion at the start of the fiscal year in July 2023 according to data from the Central Bank of Kenya (CBK).
In March 2023, domestic debt stood at Sh4.54 trillion having risen from Sh4.266 trillion at the start of the previous fiscal year.
The development shines the spotlight on President William Ruto’s much-publicised resolve to address the country’s debt crisis by slowing down on new borrowings and cutting government expenditure.
Upon taking office, he said the government would slash the budget by Sh300 billion. The heightened borrowing comes despite the implementation of the Finance Act, 2023 which raised taxation in efforts to narrow the fiscal deficit.
Despite the introduction of new levies and an aggressive push by the taxman to seal leakages, the Parliamentary Budget Office (PBO) has warned that the Kenya Revenue Authority (KRA) is likely to miss the collection targets for the current financial year by Sh330 billion. During the eight months to February this year, KRA collected 55 percent of the Sh2.49 trillion target, setting up the taxman for a race against time to raise Sh1.12 trillion in a period of four months to June.
Collections were less than half (49 percent) of the original ordinary revenue target of Sh2.787 trillion that was set in the budget unveiled last June.
Last December, the National Treasury unveiled revised estimates that raised the domestic borrowing targets for the current financial year to cap it at Sh471.4 billion on the back of lower-than-projected tax collections.
The target had originally been set at Sh415.3 billion in the Budget Review and Outlook Paper (BROP) in September last year.
The increased appetite for domestic debt also comes at a time when Treasury records show that the amount of interest paid out by the government on internal borrowings rose by a fifth during the first six months of the 2023/24 fiscal year compared to the corresponding period the previous year.
According to the Treasury's latest quarterly economic and budgetary review report, the government spent Sh300.1 billion on domestic interest charges in the six months to last December, up from Sh251.6 billion in a similar period in 2022.
Increased domestic borrowing also leads to crowding out of private sector players from the money pool in the economy, which in turn slows down investment activities and ultimately hampers economic growth.
As of last Friday, commercial banks held the bulk of the Sh5.256 trillion domestic debt at 45.78 percent, followed by pension funds at 29.34 percent.
Parastatals and insurance companies, on the other hand, held 5.25 and 7.13 percentage shares respectively while other investors accounted for 12.49 percent. As of January this year, the total public debt stood at Sh11.248 trillion.
