Kenya’s Debt Surges to Record Sh1.56 Trillion
During President William Ruto’s first year in office, Kenya borrowed the most money in a single year, surpassing the debt ceiling due to tax revenue shortfalls and increased repayment obligations.
According to newly released data from the Treasury, gross debt increased by Sh1.56 trillion during the fiscal year that ended in June, surpassing the Sh10 trillion threshold by Sh189.53 billion.
Kenya ended the previous fiscal year in June with a gross total debt burden of Sh10.19 trillion, an increase of 18.08 percent from Sh8.63 trillion a year earlier, which was the final full fiscal year under former President Uhuru Kenyatta.
In June, legislators voted to convert the numerical debt ceiling to an anchor of 55 percent of gross domestic product (GDP), granting the Treasury five years to conform.
The increase in gross debt occurred during a fiscal year in which Dr. Ruto, who was in charge for nine of the twelve months under consideration, made it plain that his administration would reduce borrowing.
According to Treasury data, nearly Sh1.43 trillion, or 91.52 percent of the new gross debt, was contracted in the last nine months of the reviewed year.
Dr. Ruto, who rode to power in part on a pledge to make debt a “last resort” for plugging budget gaps, had vowed not to make the nation “slaves of debt from any place or country.”
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He pledged to pursue policies that improve tax compliance and increase national savings from the current “seven” percent of GDP to the 30 percent envisioned in Vision 2030, Kenya’s long-term development plan.
“I am looking forward to the day, soon enough, when we borrow from the savings of the people of Kenya to run our development instead of borrowing from other countries,” Dr. Ruto had said before being sworn into office last September.
“As we work together to pull our economy out of the mire, I am encouraging the people of Kenya to pay their taxes, and I will set the example by paying mine first.”
However, preliminary official data suggests that the Ruto administration’s fiscal consolidation plan was disrupted by underperformance in the primary tax streams, which fell short of the Sh2 trillion target by Sh112,76 billion in an economy that was weakening.
Two-thirds of the increase in aggregate debt was due to foreign borrowing after Kenya contracted an additional Sh1.06 trillion from foreign creditors to reach Sh5.36 trillion.
Multilateral lenders — primarily the World Bank Group, the International Monetary Fund (IMF), and the African Development Bank (AfDB) — increased their credit to Kenya by Sh728.85 billion, or 37.89 percent, surpassing the Sh2.65 trillion threshold.
Multilateral lenders such as the World Bank and AfDB offer concessionary loans with a fixed interest rate of 1.75 percent, a 35-year term, and a grace period of up to 10 years.
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This reduces the burden of future repayments, in contrast to commercial borrowing such as Eurobonds, where interest rates are presently double-digit and tenors are shorter.
The stock of debt taken from foreign commercial banks and wealthy nations grew by Sh166.09 billion and Sh159.83 billion during the review period, reflecting in part the impact of a weaker shilling, to close at Sh1.36 trillion and Sh1.33 trillion, respectively.
Through the sale of Treasury bonds and bills, borrowings from domestic sources such as commercial banks, pension funds, and insurers increased by Sh503,01 billion to end June 2023 at Sh4.83 trillion.
Since 2020, the IMF and the World Bank have classified Kenya as having a high risk of debt distress due to its persistently large deficits in annual budgets, which are financed by borrowing.
Eurobond offerings, a package of Chinese loans, and syndicated commercial loans over the years have contributed to Kenya’s debt spree, which is now straining its finances as the loans mature.
The Ruto administration, for instance, spent Sh1.16 trillion on maturing debt and interest in the fiscal year that ended in June, with the burden expected to increase to an estimated Sh1.8 trillion in the fiscal year that ends in June 2024.
CBK Governor Kamau Thugge stated on June 26 that he believes the National Treasury’s fiscal framework has accounted for all debt service payments, including the impact of a higher exchange rate.
“They have a plan to reduce the overall fiscal deficit and achieve a sustainable debt and fiscal position over the medium term.”
Kenya’s Debt Surges to Record Sh1.56 Trillion
