Treasury PS blames ballooning debt on costly new constitution

National Treasury PS Dr Chris Kiptoo addressing the media outside Treasury Building in Nairobi on February 13, 2025. [Boniface Okendo, Standard] The National Treasury has linked the country's ballooning debt over the years to the pricey cost of upholding the 2010 constitution, even as Kenyans await the submission of budget estimates and the Finance Bill 2025, this month. National Treasury Principal Secretary Dr Chris Kiptoo said the country's budget deficits have been widening since the adoption of the new constitution, which necessitated more borrowing. While responding to requests from players in the pension sector on possible exemptions to enable growth, the PS said the industry should be cognisant of the need to raise revenue for the government to provide the services it is mandated to. He said the development projects lined up by the government, such as roads and education, can no longer be implemented through debt. "We have done it through tax and debt. Unfortunately, we cannot incur more debt, especially when we adopted a new constitution in 2010. It brought in a lot of rights, created new institutions, a bicameral parliament, independent institutions and commissions," he said. The PS said that subsequent budgets after the promulgation of the 2010 constitution had increased deficits due to the spending pressures to sustain these new bodies. "In fact, by 2020, our budget deficit was 8.1 per cent of the gross domestic product (GDP). Accumulation of budget deficits in the years to 2021 meant that our debt became higher," he said. He noted that in 2013, the country's debt carrying capacity was high and the possibility of default was low. "By 2018, it was rated moderate, and by 2020, we were on high risk." Referring to the requests for tax exemptions for the pension sector, the PS said if the country continues accumulating more debt, it is the workers' savings that would be at risk. "Of your Sh2.25 trillion assets under management, a majority are in the same debt that the government borrows. If we reach a situation where we are unable to pay you, what happens?" he posed. Due to the shrinking space for external debt, the government has of late been leaning towards domestic debt, where workers' and retirees' pension benefits are invested. In the Annual Public Debt Management Report for the year ended June 2024, of the Sh10.6 trillion public debt, domestic debt stood at Sh5.4 trillion, largely made up of bills and bonds floated by the National Treasury. By December 2024, public debt had moved to Sh10.9 trillion according to the Central Bank of Kenya (CBK), with domestic debt standing at Sh5.9 trillion. PS Kiptoo said that due to this disturbing trend, the government moved in to implement fiscal consolidation as both a revenue and expenditure-driven measure. The government however has been on the receiving end on debt with offices such as that of the Controller of Budget and that of the Auditor General pointing the cause of borrowing to be misuse of public funds. While fiscal consolidation has been tabled as an option for the government to tame its spending spree, there is also concern about its effect on the economy. The Institute of Public Finance (IPF), an independent think tank on public finance matters, notes that while Kenya has endured debt vulnerability, highlighting the importance of the government staying on course with fiscal consolidation over the medium term, fiscal consolidation has resulted in Kenya experiencing a 'lost decade' in public expenditure. The 2025 IPF Macro Fiscal Analytical Snapshot adds that large fiscal deficits, elevated debt levels, revenue shortfalls, and the need to avoid further borrowing will result in a continuous decline in per capita public spending (excluding interest) in real terms for several years. "There may be a turning point in 2025, but even then, growth will be very slow, and projections suggest that in real terms, non-interest expenditure per capita will get back to 2018 levels only by 2028, partly due to ever-increasing debt interest burden," reads the research document.

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