Kenya's domestic borrowing passes Sh6 trillion despite new taxes
Data from the Central Bank of Kenya (CBK) shows that domestic debt increased from Sh4.342 trillion as of September 16, 2022, to Sh6.021 trillion by February 14, 2024.
Kenya's domestic debt has grown by Sh1.7 trillion since September 2022, pushing the country's total domestic borrowing past Sh6 trillion for the first time.
This surge has occurred under the current administration despite the introduction of higher taxes aimed at reducing the fiscal deficit.
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Data from the Central Bank of Kenya (CBK) shows that domestic debt increased from Sh4.342 trillion as of September 16, 2022, to Sh6.021 trillion by February 14, 2024.
This rise in just over two years accounts for nearly half of the Sh3.319 trillion borrowed domestically during the 10-year tenure of former President Uhuru Kenyatta.
For comparison, when Uhuru took office in April 2013, Kenya's domestic debt stood at Sh1.023 trillion. By the time he left in September 2022, the debt had quadrupled to Sh4.342 trillion.
The borrowing spree has continued into this year, with domestic debt expanding by Sh152.7 billion so far. This comes at a time when the Treasury's overdraft facility at CBK has reached a record Sh107.5 billion as of last week.
Commercial banks remain the biggest holders of Kenya's domestic debt, accounting for 45.92 per cent, followed by pension funds at 28.38 per cent.
Other lenders include retail investors at 12.62 per cent, insurance firms at 7.21 per cent, and state corporations at 5.87 per cent.
The retail investor category, labelled as "others" in government records, includes individuals, saccos, religious and educational institutions, private firms, and self-help groups.
Despite the implementation of new taxation measures under the Finance Act, 2023, the government has continued to rely heavily on domestic borrowing.
The higher taxes were initially meant to reduce the country's fiscal deficit during the president's first full financial year in office.
Looking ahead, the National Treasury has set a target of Sh684.2 billion in net domestic borrowing for the upcoming financial year.
This is Sh271 billion higher than the current target of Sh413.1 billion. Domestic lenders will thus provide most of the financing for the Sh831 billion budget shortfall, with external sources expected to contribute only Sh146.8 billion.
Analysts warn that increased pressure on CBK to accept more domestic bond and Treasury bill investments could lead to higher yields.
This could, in turn, push up interest rates, potentially reversing recent progress made in controlling inflation.
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