Treasury admits to Sh220 billion excess borrowing citing delays in foreign financing
Legislators questioned the Treasury’s commitment to reducing public debt and adhering to its own policies.
The government has borrowed Sh220 billion more than the limit approved by Parliament in the current financial year, exposing the economy to costly loans and potential financial instability.
Appearing before Members of Parliament, Treasury Principal Secretary Chris Kiptoo revealed the excess borrowing, attributing it to delays in foreign financing.
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“As of yesterday, we had borrowed Sh624 billion from the local market. This is due to delayed foreign financing,” Kiptoo told the Finance and National Planning Committee chaired by Molo MP Kimani Kuria.
“We expect to live within our means; the approved deficit.”
However, MPs warned that the move could crowd out private sector credit and escalate the country’s debt burden.
The National Assembly had approved a domestic borrowing ceiling of Sh761 billion for the current financial year. Initially, the government planned to borrow Sh263.2 billion locally, but this figure was later revised upwards by Sh141.4 billion following the rejection of the Finance Bill, 2024, which had anticipated additional revenue of Sh344.3 billion to support the Sh3.992 trillion budget.
Local commercial loans
The increased reliance on local commercial loans has raised concerns among legislators and economic experts, given that such loans typically attract higher interest rates and shorter repayment periods, potentially exacerbating the country’s debt burden.
Commercial banks are the primary local lenders to the government, holding 45 per cent of government securities, followed by pension funds at 32 per cent.
Legislators questioned the Treasury’s commitment to reducing public debt and adhering to its own policies, which emphasise concessional borrowing to minimise costs and risks.
According to the 2024 Budget Policy Statement (BPS) approved by Parliament, “commercial borrowing sources will be utilised as a last resort to fund the fiscal deficit and repay maturing external debts.”
“More emphasis will be on maximising concessional loans while non-concessional borrowing will be limited to economic enabler projects that cannot secure concessional financing and are in line with the Bottom-Up Transformation Agenda of the government,” the statement states.
Revenue collection
Kenya’s revenue collection has been on a downward trend, with revenue as a percentage of GDP dropping from 18.1 per cent in the 2013/2014 financial year to 14.3 per cent in 2022/2023. Meanwhile, government expenditure has continued to rise, resulting in increased borrowing to bridge the budget deficit.
The National Assembly’s Budget and Appropriations Committee has previously warned against excessive domestic borrowing, noting its potential impact on credit availability for the private sector.
In its report on the supplementary budget for the current financial year, the committee highlighted that interest rates on Treasury bills had risen sharply, with 91-day and 182-day T-bill rates increasing from 9.76 per cent to 16.68 per cent and 10.06 per cent to 16.86 per cent, respectively.
“The committee noted that this may pose a risk of crowding out cheap credit to the private sector by the government, as lenders may opt to lend more to the government compared to the private sector,” reads the report.
“This may negatively impact private investment, job creation, and private-sector-led economic transformation.”
During the committee hearing, Baringo North MP Joseph Makilap accused the Treasury of lacking fiscal discipline, leading to violations of approved borrowing ceilings.
“There is too much balancing at the National Treasury occasioned by over-projections on revenue. We borrow to pay debts,” he said.
The revelations have intensified scrutiny on the government’s fiscal policies, with pressure mounting on the Treasury to rein in excessive borrowing and adhere to sustainable debt management strategies.
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