Kenya’s Fiscal Deficit forecasted to hit KES 720.1 billion

The National Treasury has announced that the country’s fiscal deficit is expected to reach KES 720.1 billion in the next fiscal year, commencing from July 1.

The government plans to secure KES 198.9 billion through foreign funding, while net domestic financing accounts for KES 521.5 billion. The revelation was made by National Treasury Principal Secretary, Chris Kiptoo, while speaking to the parliamentary committee on Public Debt and Privatization.

Kiptoo explained that the country’s public debt stood at KES 9.1 trillion as of December 2022, with KES 4.67 trillion of the amount being external debt, and KES 4.47 trillion being domestic debt. He attributed the growth in public debt to external and domestic borrowing and the appreciation of foreign currency exchange rates against the Kenyan shilling during the review period.

Kiptoo warned that the combination of the debt stock and the projected net borrowing for the remaining part of the current year and the fiscal deficit is likely to push the country’s public debt stock beyond the KES 10 trillion debt limit in the fiscal year 2023-2024.

Therefore, the National Treasury has initiated the process of amending the debt ceiling from the numerical number of Kes10 trillion to a debt anchor of 55 percent of Debt to GDP in present value terms.

Kiptoo emphasized the importance of implementing measures to address the country’s public debt situation to ensure long-term economic growth and stability. “We need to ensure that we have a manageable debt situation that doesn’t threaten our economic growth,” he said.

The present value of debt as a percentage of GDP is at 60 percent, projected to decline to 53.1 percent in the fiscal year 2025-2026 under the fiscal consolidation program policy stance outlined in the 2023 BPS. The reduction is consistent with the current Medium Term Debt Strategy (MTDS) to minimize the stock of Treasury Bills relative to Treasury Bonds.

It is important to note that the debt is mainly owed to multilateral and bilateral lenders, with China holding 67 percent of bilateral debts, amounting to KES 1.21 billion.

Commercial debt accounts for 27 percent of Kenya’s external debt, with Eurobond accounting for 19 percent or KES 870 billion. In terms of domestic debt, treasury bonds account for 84 percent, or KES 3.71 trillion, while treasury bills account for 14 percent or KES 670 trillion.

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