Public debt audit welcome, but it must dig deeper

Kenya’s debt burden is undoubtedly the most pressing challenge today, resonating even with Gen Zs. It’s an undeniable ‘elephant in the room’ that affects every Kenyan, shaping economic policies and the national discourse.

The recent push for a forensic audit of the public debt, announced after enhanced austerity measures following the withdrawal of the Finance Bill 2024, is a welcome move.

This audit, expected to provide a comprehensive report within three months, is a crucial step toward understanding the extent and nature of the debt and how public resources have been managed.

That this audit, based at the National Treasury and Economic Planning ministry, is expected to offer clarity to Kenyans, highlighting how public funds were used and proposing sustainable strategies for managing the debt with intergenerational equity in mind, is a welcome move.

However, what should Kenyans realistically expect from this audit? Despite the recent appointment of a substantive head of debt management, the details of the debt portfolio are far from secret. Financial documents are accessible and provide a clear view of the debt.

What remains crucial is the analysis of how the borrowed money was expended. The Office of the Auditor General has been reviewing government spending for years. If the current administration is serious about addressing this issue, leveraging the Auditor General’s expertise could be key. This office has the experience and authority, since it has been uncovering the intricacies of public spending and can even suggest practical solutions for sustainable revenue management and debt handling given the chance.

Looking back in retrospect, though, and how Kenya found itself in this debt predicament reveals much about the administration’s choices. The current government’s insatiable appetite for debt and aggressive tax policies, paired with limited visible development, significantly contributed to this crisis.

Despite campaign promises to curb the ballooning public debt, the Kenya Kwanza administration quickly moved to increase borrowing. Officials simultaneously eliminated tax reliefs for workers and businesses, exacerbating the financial burden on the populace.

When President Ruto took office, Kenya’s total debt stood at Sh9.6 trillion, just Sh400 billion shy of the legislated borrowing ceiling. This tight margin left the government with little room to manoeuvre financially. This is as about 60 percent of all revenue collected was allocated to debt repayment, a huge proportion that constrained fiscal flexibility.

Meanwhile, the Kenya Revenue Authority had been collecting increasing amounts of taxes, yet there was relentless pressure to further expand the tax base, as was visible in the Finance Bill 2024.

It notable that when the Treasury and the KRA decided to suspend all tax relief payments from February 2023, this decision significantly impacted many Kenyans, particularly those who benefited from reliefs based on household size, and people with disabilities, who were exempt from motor vehicle import taxes.

The suspension of these reliefs effectively raised the tax burden on individuals and businesses, straining the finances of ordinary Kenyans, and businesses.

But it was the decision to remove the debt ceiling, which effectively granted the government an open cheque to borrow more extensively, that broke the camel’s back.

With the public debt now at over Sh10 trillion, every Kenyan carries a proportional debt burden of about Sh300,000. This  is a sharp increase from Sh38,000 in 1998 under President Daniel arap Moi, when the debt was around $5.5 billion

. By the end of President Mwai Kibaki’s tenure in 2013, the debt had risen to $24 billion. It ballooned to $72 billion when President Uhuru Kenyatta left office.

The recent shift from a fixed debt ceiling to a percentage of GDP as a borrowing limit complicates the situation.Though the debt audit is a good move for fiscal responsibility and transparency, it must go beyond surface-level observations.

— The writer is People Daily’s Business Editor