Kenya is weighed down by swelling public debt and faces the possibility of a debt crisis (where the government can’t repay what it owes).
Kenya’s current public debt stands at approximately 4.884 trillion Kenyan shillings (USD$49 billion) . This is up from 42.8% in 2008. In other words, the country owes more than half the value of its economic output (GDP).
The International Monetary Fund recommends that ratios of public debt to GDP should notbe higher for developing countries.
To be fair, this level of debt is comparable to that of other developing economies. For example, South Africa’s ratio of public debt to GDP was 53.1% in 2017 (2008: 27.8%). Nigeria’s was 21.3% in 2017 (2008: 7.3%). Brazil, India and China all have ratios over 40%. However, the economies of these countries are several times larger than Kenya’s.
Policy analysts are about public debt compared with its national income. implying that every Kenyan owes about USD$962 – and produces USD$1169 a year. In comparison, each South African owes about USD$1434 and produces USD$12,295.
Unsustainable debt levels can be harmful. They can “crowd out” development and social programmes because huge portions of government revenue are taken away from essential services and used instead to service debt.
In the worst case scenario, Kenya might be forced to cede control of its strategic national assets to foreign creditors. This has happened in some countries such as which had to hand over a strategic port to China.
Kenya’s risk of defaulting on debt repayments has increased to moderate from low, the International Monetary Fund (IMF) has said, citing the government’s public investment drive and revenue shortfalls in recent years.
The Washington-based lender forecast Kenya’s total public debt will reach 63.2 percent of economic output or GDP this year then begin declining. Public debt was 58 percent last year and 53.2 percent in 2016.
“The higher level of debt, together with rising reliance on non-concessional borrowing, have raised fiscal vulnerabilities and increased interest payments on public debt to nearly one fifth of revenue, placing Kenya in the top quartile among its peers”, the IMF said in a report released late on Tuesday.
The government led by President Uhuru Kenyatta, who was re-elected last year, began in 2016 to pour billions into infrastructure projects, including a Chinese-built railway. In his second and final term, Kenyatta has said his government will focus on manufacturing and public housing. The IMF recommended Kenya’s Treasury refinance loans at longer maturities to limit refinancing risks.