There are fears that Kenya’s debt has been funding mostly government salaries. Image: The Conversation.
President William Ruto believes Kenya had over-borrowed money from other countries and he is determined to reduce public debt.
There are fears that Kenya’s debt has been funding mostly government salaries. Image: The Conversation.
In the run-up to Kenya’s 2022 polls, economic issues, particularly public debt and joblessness, took centre stage. The Kenya Kwanza team led by William Ruto suggested that Kenya had over-borrowed, a habit they pledged to stop. Ruto’s rivals defended the debt, insisting investment in infrastructure would spur economic growth.
Kenya’s current overall debt stands at US$87.4 billion, or 62.3% of the GDP. At an official borrowing limit of KSh10 trillion (US$100 billion), Kenya, which had a nominal GDP of US$140 billion in 2022, would have a debt to GDP ratio of 71.4%. A debt limit of no more than 64% of the national GDP is recommended for developing countries such as Kenya. Almost half of Kenya’s debt, 49.8% (US$47.2 billion) is owed to foreign interests.
Global institutions like the International Monetary Fund and the World Bank are concerned about Kenya’s debt sustainability.
Aside from the sheer amount being borrowed, there are fears that the debt has been funding recurrent expenditure, mostly government salaries. It’s true, though, that big projects like the standard gauge railway and the expressway have been partly funded by debt.
Debt politics has further been fuelled by the narrative that by saddling Africa with debt, China is able to call the shots on trade, investment and even geopolitical issues.
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Ruto is now in power and seems determined to reduce public debt. The government still has to rely on domestic and foreign borrowing, but Ruto wants to reduce it. He intends to do that by collecting more taxes and using national savings to pay for what the country needs.
The Kenya Revenue Authority has been given new revenue targets – US$10 billion more to raise in one year, an almost 50% increase. It is expected to double current collections in five years to US$48 billion by 2027, an election year.
The targets seem too ambitious under the current socio-economic circumstances. In trying to achieve the target, the formal sector is likely to be the hardest hit as its revenues are public and hard to hide. Higher taxes could depress demand too, leading to lower tax revenues and job losses.
But increased tax collections could benefit everyone if the taxes are put to good use. Here are seven ways Ruto’s government can raise tax collection and cut reliance on foreign debt:
Collecting more tax should be coupled with prudent government spending. That has political implications; it could lead to job losses in the public sector, but create efficiency – which is good for the economy in the long run.
Article by: XN Iraki. Associate Professor, Faculty of Business and Management Sciences, University of Nairobi
This article is republished from The Conversation under a Creative Commons license. Read the original article.