Half of Sh1tn budget to be used on national debt

Budget and Appropriations Committee Chairperson Kimani Ichung’wa. He said there is need to strike an optimal balance between external and domestic borrowing. PHOTO | FILE | NATION MEDIA GROUP

What you need to know:

  • The Treasury targets a total revenue collection of Sh2.081 trillion of the gross domestic product during the 2019/2020 financial year.

Half the national budget, or Sh1.04 trillion, will be required to finance various debts that are maturing in the financial year 2019/20, Parliament has said.

The Budget and Appropriations Committee (BAC) said the refinancing needs for the next one year will reach $10.4 billion (Sh1.04 trillion), having risen nearly tenfold from $1.8 billion for financial year 2018/19 and $1.4 billion in 2017/18.

“The refinancing requirements of debt maturing in one year in financial year 2019/20 will reach 50 percent of total revenue and will therefore require cautious domestic revenue management given rising expenditure needs,” BAC chairman Kimani Ichung’wa said in the report on the Budget Policy Statement.

The Treasury targets total revenue collection including appropriation-in-aid amounting to Sh2.081 trillion or 18.3 percent of the gross domestic product during the financial year 2019/20.

REVENUE

The BAC says ordinary revenue is projected at Sh1.87 trillion during the year to June 2030.

“This is higher than Sh1.652 trillion during in 2018/19. According to the 2019 BPS, the projected revenue performance will be underpinned by ongoing reforms in tax policy and revenue administration,” BAC said in the report.

The committee said the medium term debt management strategy shows that external debt will be financed through Concessional Finance (26 percent), Semi Concessional Finance (eight percent) and Commercial Finance at four percent.

“There is a growing concern on debt sustainability versus revenue generation. The national government should borrow wisely for development so as not to burden future generations.

"There is need to strike an optimal balance between external and domestic borrowing to protect the country from external shocks,” Mr Ichung’wa said in the report.

DEFICIT

The committee wants Parliament to consider amending the Public Finance Management Act to provide for a numerical debt ceiling as opposed to the current scenario where the debt ceiling is pegged on the GDP projections.

“The borrowing strategy as contained in the Medium Term Debt Management Strategy (MTDS) 2019 is approved,” BAC said.

The committee said the MTDS proposes a borrowing framework of 38 percent external and 62 percent domestic borrowing to finance the national budget deficit.

The MPs said there is variation between the deficit financing policies indicated under the BPS and the MTDS, where BPS proposes to finance the deficit through external financing to domestic ratio of 47 percent to 53 percent while the MTDS utilises a ratio of 62 percent external financing and 38 percent domestic financing.

“MTDS indicates that commercial debt should only make up four percent or Sh12.26 billion, total external borrowing whereas the BPS target is set at 47 percent or Sh207.8 billion,” BAC said.