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Debt Repayments Take Up 59% of Kenya’s Tax Income – Report

Kenya’s debt-service costs took up 59% of the nation’s tax income in the fiscal year ended June, the highest proportion in more than a decade, Bloomberg reported.

The costs climbed from 56.7% in the previous period, the National Treasury said in a report that comes as President William Ruto’s administration ramps up revenue collection to ease the national debt burden, according to the report.

New measures, including doubling the value-added tax on petroleum products and slowing public-wage increases, will help the government achieve the lowest fiscal deficit in a decade in the 12 months through June 2024, according to the Treasury.     

Next year, it plans to introduce additional tax measures to yield 0.3% of gross domestic product, according to the report.

“Kenya finds itself in a precarious fiscal space with hopes of revival pegged on overly optimistic revenue forecasts, a strategy we find largely untenable in the current macro-environment,” analysts at Sterling Capital, including Renaldo D’Souza, said in a note. 

Authorities should rather focus on “managing expenditure and reducing wastage,” they said.

The IMF this month cut its economic-growth forecast for Kenya this year to 5% from 5.3% previously.

The finance minister Njuguna Ndung’u said in his budget speech on June 15 that the government will pay all debts when they fall due.

Ndung’u forecast economic growth would expand to 5.5% this year, up from 4.8% in 2022, when the country was affected by a severe drought and global shocks including the war in Ukraine that curbed economic activity.

“Although the debt burden has risen … The government is committed to honour all public debt obligations as they fall due,” he said in his speech to parliament at the time.

Ndung’u set total government expenditure for the year at $27 billion, a lower rise over the previous year, noting that the government had moderated its spending “in order to ensure value for money.”

According to opposition members of parliament, the government’s plans to double the tax on petroleum products to 16%, growing costs of essential goods such as maize flour and cooking oil, and limited revenue collection could have a negative impact on economic growth. 

The increases in taxes and the high cost of living has triggered nationwide riots in recent weeks, including a three-day shutdown from Wednesday to Friday last week to urge the president to revoke the new taxes.

Source: Zawya