Budget: Treasury allocates Sh1.6tr for debt repayment

The government has announced plans to allocate a substantial portion of the 2023/24 National Budget towards debt servicing.

According to the budget statement released by the National Treasury yesterday, the government is set to spend Sh1.6 trillion on debt service in the current financial year, representing a significant increase from the Sh1.3 trillion allocated in the previous fiscal year.

Of the total debt service expenditure, Sh628 billion has been earmarked for servicing interest on internal debt, while Sh146 billion has been allocated for external debt interest payments.

The budget statement further reveals that the payments on principal debt, also known as redemptions for external debt surpass those of domestic redemptions largely because of the Eurobond maturity next year which stands at Sh241 billion. 

External redemptions are worth Sh475 billion while internal redemptions are worth Sh374 billion.

The decision to allocate a substantial portion of the budget towards debt servicing comes as Kenya grapples with a mounting debt burden and rising debt-to-gross domestic product (GDP) ratio.

The government’s move aims to ensure the sustainability of its debt obligations and restore investor confidence in the country’s financial stability.

Kenya’s debt profile has been a cause for concern among economists and analysts, especially early in the year when the government forced civil servants to go without salaries in order to pay debt.

The country’s debt-to-GDP ratio stood at about 71 per cent as of the end of the previous fiscal year, prompting calls for prudent debt management and fiscal discipline. 

Increased allocation for debt servicing underscores the government’s commitment to address this issue and meet its financial obligations.

This move is crucial to maintain stability in the local financial market and prevent potential disruptions but it will come with pain to Kenyans.

It means that the country will continue to face difficulties getting dollars for its supplies as a large part of it will be spent on debt service.

Financial obligations

Meanwhile, the higher amount allocated for servicing external debt highlights the importance of honouring international financial obligations.

The government recognises the significance of maintaining a positive relationship with external creditors and ensuring timely repayment to bolster its credibility in the global financial arena.

Critics argue that the increased debt service expenditure may have repercussions for other critical sectors such as healthcare, education, and infrastructure development.  However, the government has assured the public that it remains committed to striking a balance between debt servicing and funding essential public services.

To mitigate the impact of high debt servicing costs, the government has also emphasised its commitment to implementing fiscal reforms and exploring alternative financing options.

This includes seeking external assistance through bilateral agreements, engaging with international financial institutions, and pursuing public-private partnerships for infrastructure projects.

As Kenya navigates its debt challenges, the government’s budget allocation for debt servicing in the 2023/24 fiscal year underscores the need for responsible financial management and a focus on debt sustainability.

The increased spending on debt service, particularly on internal and external interest payments, highlights the government’s determination to honour its obligations and maintain economic stability.