Impact of Debt Servicing on Social Spending and Wellbeing of Low-Income Households in Kenya: A Case Study of Nairobi City and Mombasa Counties

Policy Brief

Paper author: 
Dr. Francis Omondi
Paper publication date: 
Thursday, March 24, 2022

Kenya’s public debt service in national government spending has increased over the years from 21.6% to 29.2% in the period 2015 to 2019. Debt service in total ordinary revenue also increased from 34.9% to 49.8% in the same period. On the contrary, government spending in education and health recorded declining trends in the same period. The negative correlation between the trend of debt service and expenditures in health and education shows that debt service crowded out social spending in the analysis period.

Loan driven infrastructure investments from 2015 to 2020 in the social sectors cut across various programmes and are mainly aligned to Kenya’s long-term transformation objectives.Surveyed low income households in Mukuru area in Nairobi and Kalahari and Bangladesh slums in Mombasa have benefited from completed projects in health, education, water and sanitation, roads, electrification and security projects

The reductions in spending in health and education have negatively impacted access to quality education and healthcare to low income households due to lack of medicines and specialised facilities in level three hospitals, inability to pay school fees and purchase learning resources. Rise in public debt has reduced the private sector’s access to credit resulting in low levels of private investments and reduced job opportunities and other economic trickle-down effects which hurt the low-income households the most.

New taxes, increase in existing tax rates, subsequent increase in costs of production, and increase in prices of basic commodities due to rising debt service burden have led to a general reduction in households’ final consumption expenditure.

The Level of Citizens Participation in the budget and debt cycle is low due to lack of awareness and capacity among citizens for effective participation, insufficient allocation of time and resources for the exercise with no clear established mechanisms at both County and National government levels for public participation

Public borrowing on concessionary terms, Public - Private Partnerships on priority infrastructure and debt conversion could reduce spiralling growth of debt. Loans should go to projects with large positive externalities and potential income for repayment to reduce service burden on households. Progressive taxation and removal of taxes on basic commodities including VAT on cooking gas and vegetable oils can minimise the impacts on well-being of low-income households

Timely disbursement of equitable share to Counties is critical for sustaining social and economic programmes as well as realisation of development budgetary allocations towards expanding capacity for services to growing populations

The National and County Assemblies should legislate and enact clear procedures for effective implementation of citizen participation in the budget cycle. National and County governments to collaborate with civil society and other stakeholders to conduct civic education on the rights and role of citizens in fiscal management