Kenya

Kenya’s external public debt multiplied by five between 2010 and 2022, going from US$7.4 billion to US$37.4 billion. Despite economic growth averaging 4.8 per cent in the last five years, public debt accumulation has been more acute, with the country going from a public debt to GDP ratio of 36.7 per cent in 2010, to 67 per cent in 2020 (in part due to the impact of the Covid-19 pandemic) and to 70.2 per cent in 2023. Debt increase in 2023 meant that the country breached the public debt ceiling established by domestic law, which had already been increased in 2022. Domestic debt also grew substantially, multiplying by seven in almost a decade, from KES.113.6 billion in 2012 to KES.780.6 billion in 2021. The IMF and World Bank assess Kenya’s debt as in high risk of debt distress.

As debt stocks are growing, and borrowing costs increase for Kenya, the amount of resources diverted to debt service has substantially increased. External public debt service multiplied by seven in the past decade, going from US$497 million in 2013 to US$3.69 billion in 2023. Between 2012 and 2021, debt service for domestic debt also increased from KES.82.3 billion to KES.546 billion. The more resources spent on repaying debt, the smaller the amount remaining to provide basic services, which include

For the fiscal year 2021, Kenya’s tax revenue amounted to 15.2 per cent of GDP. This is slightly below the average for Africa, which was 15.6 per cent of GDP for 2021, but far below the East African Community recommended level of 25 per cent. Whereas the average tax to GDP ratio for African countries has increased over the last decade, Kenya’s tax to GDP ratio has been dropping and is currently below the 2010 level, which was 15.9 per cent of GDP. This can be attributed to several reasons.
One main cause is overgenerous tax incentives. The latest estimates by the Kenya Revenue Authority suggest that the tax expenditure to GDP ratio reached 2.94 per cent in 2022, which was an increase from 2.44 per cent in 2021 and 2.23 per cent in 2020. In this context, it is worth noting that the granting of tax incentives has not been preceded by proper cost–benefit analysis and neither is there a legal framework to guide the granting and monitoring of tax incentives.
As mentioned below, the country is at the same time faced with substantial revenue losses due to illicit financial flows, which also erodes the tax to GDP ratio. Furthermore, it is also an important factor that the tax compliance level is currently estimated to be as low as 70 per cent In its Mid-Term Revenue Strategy, the Kenyan government has set the targets of reaching a tax to GDP ratio of 20 per cent and a tax compliance rate of 90 per cent by the end of the financial year 2026-2027.

In the report State of Tax Justice 2023, Tax Justice Network has estimated that cross-border tax abuse is costing Kenya a total of US$189.8 million annually, corresponding to over 9 per cent of the country’s health expenditures. Of this loss, it is estimated that US$134.1 million stems from corporate tax abuse and the remaining US$55.7 million from offshore wealth.