Kenya Treasury Domestic Debt Interest: PAC Questions Sh533.7bn Spend

• Kenya's National Treasury was questioned over Sh533.7 billion paid in domestic debt interest for the 2023/2024 financial year.
• The Public Accounts Committee noted total public debt interest payments reached Sh762.44 billion, prompting calls for a national discussion on borrowing.
• Treasury PS Chris Kiptoo attributed high domestic borrowing costs to market conditions, limited external financing, and a pressured shilling.
• Domestic debt accounts for 57% of Kenya's public debt, with half of all KRA collections going towards interest payments.
• The government faces Sh175 billion in pending bills, though the Cabinet has approved payment for the remaining balance after Sh80 billion was settled.

Half of every shilling collected by the Kenya Revenue Authority is allocated towards servicing interest payments on the country's public debt.

Kenya's National Treasury recently faced intense questioning from the Public Accounts Committee (PAC) regarding the substantial Sh533.7 billion expended on interest for domestic debt during the 2023/2024 financial year. This inquiry, conducted on Thursday, arose as Parliament expressed significant apprehension over the escalating cost associated with public borrowing. The PAC, led by Butere MP Tindi Mwale, specifically challenged Treasury Principal Secretary Chris Kiptoo on the high expenses incurred in servicing the nation's domestic obligations. The committee's scrutiny was prompted by reports from the Auditor-General Kenya, which revealed that total public debt interest payments for the period amounted to Sh762.44 billion.

During the session, Principal Secretary Kiptoo explained that the increased reliance on domestic borrowing stemmed from restricted access to external financing during the specified timeframe. He further clarified that the interest rates applied to local borrowing were largely dictated by prevailing market conditions, contributing to their elevated levels. Kiptoo also highlighted that the Kenyan shilling had experienced considerable pressure prior to the government's partial repayment of its Eurobond in 2024, a factor influencing borrowing costs. Currently, domestic debt constitutes 57 percent of Kenya's total public debt, with external debt making up the remaining 43 percent.

The Public Accounts Committee also pressed the Treasury on the issue of outstanding pending bills, which committee members indicated stood at Sh175 billion. Principal Secretary Kiptoo acknowledged the historical challenge of these arrears, noting that outstanding bills had previously reached a peak of Sh255 billion. He informed the MPs that the government had since settled Sh80 billion of these historical obligations. Furthermore, Kiptoo confirmed that the Cabinet had given its approval for the payment of the remaining pending bills, with the disbursement process anticipated to commence within the next two weeks.

Kiptoo also provided insights into the broader financial landscape, revealing a stark reality: half of every shilling collected by the Kenya Revenue Authority (KRA) is allocated towards servicing interest payments on the country's public debt. Despite the high Kenya government borrowing cost, Kiptoo offered a more optimistic outlook regarding recent trends, stating that domestic interest rates have subsequently declined. This reduction in rates is expected to lead to lower borrowing costs for the government moving forward. The PAC underscored the urgency for a comprehensive national discussion on the country's public borrowing strategies and their long-term implications.

Addressing concerns about potential delays in the release of funds from the Exchequer, Treasury PS Chris Kiptoo assured the committee that the Treasury is currently up to date with all its disbursements. He explicitly stated that neither county governments, state departments, nor state agencies are presently owed any money by the Exchequer. This clarification aimed to dispel notions of liquidity issues impacting government operations at various levels. The ongoing parliamentary oversight highlights the critical need for transparency and accountability in managing Kenya's significant public debt and its associated interest payments.

Lawyers advising clients on government contracts or procurement in Kenya should note the ongoing scrutiny of the National Treasury's domestic debt interest payments and the significant outstanding pending bills. This fiscal pressure could impact payment timelines and government's ability to meet financial obligations, requiring careful due diligence on government counterparty risk.

Source: Original reporting via Capital FM