Kenya’s Treasury Secretary, John Mbadi, is working under difficult circumstances, seeking to stabilize a country struggling with unsustainable debt levels. With external debt contributing more than 10 percent of the national budget, Kenya’s economy has reached a critical point. Over 60 percent of government revenue is now spent on repaying debts, leaving little for essential public services and development.
The country’s fiscal woes are not a recent development but are deeply rooted in the policies of previous administrations, particularly the tenure of President Uhuru Kenyatta. During his time, fiscal discipline was severely compromised, with large deficits used to fund expensive infrastructure projects. These projects, critics argue, were often tainted by corruption, leading to significant losses, some estimates suggesting 30 percent of the budget was diverted to malfeasance.
The fallout from this financial mismanagement has been severe. As of 2023, Kenya faced an unsustainable debt burden, with the Treasury’s failure to track a significant portion of foreign loans compounding the crisis. The Auditor-General’s report raised concerns that billions in foreign loans could not be traced to the economy, leading to doubts about whether taxpayers were paying for fictitious loans or corrupt practices.
The financial mismanagement of the past administration has left the current government in a precarious position. By the end of 2023, Kenya’s debt ceiling of Sh10 trillion proved insufficient, forcing the government to introduce a new debt anchor of 55 percent of GDP, allowing the Treasury to access more foreign loans to keep the economy afloat.
Despite this shift, the economic outlook remains grim. The country’s revenue performance is still underwhelming, and the government faces the difficult task of finding external funding through expensive loans. The pressure on Mbadi is immense, particularly after the Finance Bill 2024 faced intense public opposition, with citizens protesting increased taxes in an already strained economy.
In this delicate balancing act, Mbadi’s immediate priority is to engage the public, explaining the dire fiscal situation and the need for sacrifices to stabilize the economy. The public’s support is crucial for the legitimacy of the government’s fiscal measures.
A key component of Kenya’s fiscal reform will be a full audit of its debt portfolio, an effort aimed at clarifying the country’s actual debt obligations. This audit will be instrumental in understanding how much Kenya owes to both domestic and foreign lenders and ensuring that debt repayment aligns with the country’s economic capacity.
Tax compliance is another critical area for reform. Kenya has long struggled with a narrow tax base and low compliance rates, which have hampered revenue collection. Despite this, the government has not focused on expanding the tax base or adopting modern tax administration methods. Tax officials must be trained to adapt to evolving business models and improve efficiency.
The Kenya Revenue Authority (KRA) also plays a vital role in resolving the debt crisis, but its performance has been hindered by a lack of training and outdated practices. Mbadi is tasked with ensuring KRA’s modernization to enhance service delivery and improve tax compliance, as well as dealing with the political interference in KRA’s operations that have undermined its effectiveness.