Kenyan debt up to record KSh1.56trillion

During President William Ruto’s first year in office, Kenya took on the most debt ever, pushing the country’s debt levels above the breaking point due to decreased tax revenue and increasing repayment commitments.
According to new figures from the Treasury, the gross debt stock increased by KSh1.56 trillion for the fiscal year that ended in June, surpassing the KSh10 trillion threshold by KSh189.53 billion.
Kenya’s gross total debt load as of June 2016 was KSh10.19 trillion, up 18.08% from KSh8.63 trillion at the conclusion of the previous full fiscal year under former President Uhuru Kenyatta.
The numerical debt cap was changed by lawmakers in June to an anchor of 55% of GDP, with the Treasury given five years to comply.
In a fiscal year while Dr. Ruto was in charge for 9 out of the twelve months under examination, the increase in gross debt occurred despite his administration’s assurances that it would reduce borrowing.
According to Treasury figures, about KSh1.43 trillion, or 91.52%, of the new gross debt, was contracted in the final 9 months of the year under consideration.
Dr. Ruto promised not to turn the country into “slaves of debt from any place or any country,” riding to power in part on a promise to use debt as a “last resort” to raise money to close budget gaps.
He committed to pursuing policies that would increase tax compliance rates and raise national savings from the pitiful 7% of GDP that they currently stand at to the 30% that Kenya’s long-term economic plan, Vision 2030, envisions.
“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, and that is what holds the future for us,” Dr Ruto had said last September ahead of being sworn into office.
“I am encouraging the people of Kenya as we work together to get our economy out of the mud… that each and every one of us must pay their taxes and I am going to lead from the front, making sure I pay my taxes.”
The fiscal consolidation strategy of the Ruto government, according to preliminary official data, appears to have been undermined by underperformance in the main tax streams, which fell short of the KSh2 trillion mark by KSh112.76 billion in a time of weakening economic conditions.
After Kenya borrowed an additional KSh1.06 trillion from foreign creditors, bringing it’s total debt to KSh5.36 trillion, foreign borrowing accounted for two-thirds of the increase in gross debt.
In order to surpass KSh2.65 trillion, multilateral lenders—primarily the World Bank Group, the International Monetary Fund, and the African Development Bank (AfDB)—increased their lending to Kenya by KSh728.85 billion, or 37.89% year over year.
Concessional terms apply to loans from multilateral lenders like the World Bank and AfDB. These loans have a tenor of 35 years, an interest rate that is typically fixed at 1.75%, and a grace period that can last up to ten years.
In contrast to commercial borrowing like Eurobond where the interest rates are greater, now double-digit, with shorter tenors, this lessens the burden of future repayments.
As a result of the weaker shilling, the stock of debt obtained from wealthy nations and international commercial banks increased over the review period by KSh166.09 billion and KSh159.83 billion, respectively, to conclude at KSh1.36 trillion and KSh1.33 trillion.
Through the sale of Treasury bonds and bills, domestic lenders such commercial banks, pension funds, and insurers raised their borrowings by KSh503.01 billion to KSh4.83 trillion by the end of 2023.
Kenya has been categorized by the IMF and the World Bank as having a high risk of debt distress since 2020 as a result of the country consistently running huge annual budget deficits for more than ten years, which are filled through borrowing.
A bundle of Chinese loans, syndicated commercial loans over the years, and Eurobond issues all highlight Kenya’s debt spree and are now straining it’s finances as the loans are coming due.
For instance, the Ruto administration spent KSh1.16 trillion on paying interest and maturing debt for the fiscal year that concluded in June. This cost is expected to increase to KSh1.8 trillion in the current fiscal year that ends in June 2024.
“I do believe that the fiscal framework of the National Treasury has incorporated all these debt service payments, including the impact of a higher exchange rate,” CBK Governor Kamau Thugge said on 26 June.
“They have a plan to reduce the overall fiscal deficit and to achieve a sustainable debt position and fiscal position over the medium term.”