Kenya debt now at sh4.58 trillion, Should We Care?

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Kenya debt now at sh4.58 trillion
Kenya debt now stands at sh4.58 trillion as of November 2017.

Kenya debt now stands at sh4.58 trillion as of November 2017, the highest public debt Kenya has recorded.

This means, every Kenyan now needs to pay at least Sh100,000 to clear the country’s rapidly increasing public debt.

The Kenyan government borrowed an average of Sh62.7 billion per month last year, compared to Sh54 billion in 2016 and Sh55 billion the previous year. Kenya debt moved from Sh3.89 trillion in January last year to reach Sh4.58 trillion in November, meaning that a total of Sh690 billion was borrowed during the period.

This is Sh110 billion more compared to the same period in 2016, when the government borrowed Sh580 billion.

The Standard Gauge Railway, is predicted to drop Kenya debt into at least $10 billion (Sh1 trillion) from China, seeing it accounts for at least 22 percent of Kenya’s total public debt.

The first phase of the SGR that brought the railway line move from Mombasa to Nairobi, Chinese banks and the government lent Kenya Sh327 billion for the 472-kilometre stretch and a further Sh150 billion to push it to Naivasha.

In May last year, President Uhuru Kenyatta headed the Kenyan delegation in making a formal request for a further $3.59 billion (Sh370 billion) from Exim Bank of China to finance the construction of the third phase of the SGR, a 270km-line between Naivasha and Kisumu, bringing the total loan to more than Sh850 billion.

The problem is not that Kenya is borrowing too much to fund infrastructure, but we should be worried about the practicability of the multiple projects being funded.

Can these projects repay the loan, and afford the Kenyan citizen value for money? The government should therefore ensure that these projects are sustainable.

Financial experts in February 2017 cautioned that the SGR will not repay its own loans and will need taxpayers to suffer an extra Sh15 billion to service them, putting to question the practicability of the largest single infrastructure project in Kenya in recent times.

In October 2017, global credit rating firm Moody’s placed Kenya’s B1 long-term issuer rating on review for downgrade, citing a mixture of negative microeconomics, including high Kenya debt burden, government liquidity pressure, the tense political situation and uncertainties over the future direction of her fiscal policy.

Moody is worried that Kenya’s debt-to-GDP ratio, which reached 56.4 per cent in June last year, will cross the 60 per cent mark by June this year, exerting more pressure on the Budget. This, Moody’s said, will lower Kenya’s attractiveness to creditors and investors.

Kenya debt to GDP ratio is the highest compared to her East African neighbours. The International Monitory Fund estimates Uganda’s debt ratio to GDP at 36.9 per cent, while Tanzania is at 39 per cent due to its $19.1 billion public debt. Rwanda and Burundi have 37.6 and 47.2 per cent, respectively. Even so, Kenya is debt-to-GDP ranks below Cape Verde, Gambia, Mozambique, Egypt and Djibouti, who have 134, 116, 115, 97.1 and 84 per cent, respectively.

Last year, the IMF cautioned that Kenya debt raising levels need to be contained, to cushion the economy from unplanned shocks. The Fund’s representative to Kenya, Jan Mikkelsen, said that the country needs urgent policies to address its vulnerability to debt.

 

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