In February 2024, a deputy Auditor-General raised concerns about Kenya's unsustainable debt and deficit strategy. Despite these concerns, a Eurobond with a yield of over 10% was issued, partially to repay a $2 billion bond due in June 2024. This yield was significantly higher than those obtained by Benin and Cote d'Ivoire, raising questions about Kenya's fiscal management.
The government's excessive borrowing and deficit financing have detrimental effects on counties, exacerbating poverty and hindering the deputy auditor general's oversight. Borrowing and taxation now take precedence over impactful projects. The government's dubious policy decisions and improvisations lack a coherent macroeconomic strategy for Kenya's growth.
Kenya's reliance on debt markets involves offering bondholders money that will be collected from current and future generations. The government's high yield rates make it attractive to investors, who are guaranteed repayment as the first charge in the Consolidated Fund. However, this comes at the expense of Kenya's growth, as debt servicing squeezes expenditures, including equitable allocations to counties.
The severe financial strains and unbalanced revenue allocations have turned counties into beggars for survival, with low Own Source Revenues (OSR). Equitable revenue shares are disbursed erratically, leading to disparities. The National Treasury (NT) has been criticized for ignoring economic growth drivers and irrationally hiking taxation. The absence of credible macroeconomic frameworks has hindered the development of productive sectors.
Concerned about the anti-economy approach, the Kenya Association of Manufacturers (KAM), the Private Sector Alliance (Kepsa), and other business organizations have appealed to the government to guarantee a stable tax environment and allow businesses to thrive. They argue that production, revenues, and exports compatible with sustainable development would emerge.
The government's excessive borrowing has led to a high debt-to-GDP ratio, similar to that of the Moi era. The Kibaki presidency had reduced the ratio to 38.20% by 2012, but it has now surpassed 70% of GDP, creating structural disparities in the economy and undermining devolution. The residual revenues of under 30% are subject to a scrimmage for revenue allocations to the national government and skewed allocations to counties.