Ruto: I Will Borrow Ksh1 Trillion to Cover Finance Bill Loss

President William Ruto on Sunday, June 30, announced that the government would have to borrow Ksh1 trillion in the current financial year, as a result of the fall of Finance Bill 2024. 

The President noted that the initial Finance Bill would have raised Ksh346.7 billion in additional taxes, adding that the decision to scrap it entirely left a substantial gap in the revenue sources for the 2024/2025 budget which totalled Ksh4.065 trillion. 

Initially, the government had planned to raise a total of Ksh3.3 trillion in revenues in the current financial year. This is equivalent to 18.5 percent of Kenya’s GDP.

Out of this, about Ksh346 billion was to come in new taxes proposed in the now shelved Finance Bill. 

The government was to further borrow Ksh597 billion in Financial Year 2024/25 to fill the revenue gap while Ksh51.8 billion was to be sourced from grants and aid from Kenya’s international partners. 

Originally, the plan for 2024/25 was to borrow Ksh333.8 billion from foreign sources and Ksh263.2 billion from within Kenya.

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If the same proportions are used, the new plan could mean borrowing about Ksh559.1 billion from abroad and Kes 440.87 billion domestically. This means that the rates for government bonds and Treasury bills are likely to maintain or go higher because of the increased demand for domestic borrowing.

“We have dropped the Finance Bill. What does that mean? It means we have gone back almost 2 years. It means that this year we are going to borrow Ksh1 trillion to be able to run our government,” the head of state said during a round-table interview with leading media houses. 

The President, however, noted that he was keen on having a national conversation on the way forward, in light of the national rejection of the government’s proposed tax measures in Finance Bill 2024. 

He noted that without borrowing and without the new taxes proposed in the Finance Bill 2024, critical programmes such as hiring of JSS teachers, CDF, allocations to county governments, and payments for medical interns would have to be dropped. 

"Dropping the finance bill means we will not confirm 46,000 JSS teachers. It means we cannot support our farmers with Ksh2 billion to sort out coffee debts and debts of sugarcane farmers. It means we will continue to import potatoes from Europe.”

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“I am telling these people who might be affected to be affected to give me some time. I will figure out a pla and I will do fresh budget reallocations so that the work done over the last two years does not go to waste," the President added. 

The increased borrowing is likely to strain the already dire fiscal situation with the President announcing last week that out of every Ksh100 shillings collected in taxes, Ksh60 goes to repaying Kenya’s debts. 

Kenya had an outstanding loan of Ksh11.1 trillion as of December 2023, about Ksh1 trillion more than the Ksh10 trillion debt ceiling Parliament had placed in the Financial year ending June 2023. 

In June 2023, Parliament removed the Ksh10 trillion debt ceiling cap to be a percentage of Kenya’s GDP. The debt remains in breach of the cap introduced by Parliament at 55 percent of GDP in present value terms. 

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