The Ever Ballooning Kenyan Debt: Is it time to start mourning?

Over the last few years, Kenya’s rising public debt has been a point of discussion in most macroeconomic outlook discussions.

Organizations such as the World Bank, the International Monetary Fund (IMF), global credit rating agencies (Moody’s Credit Rating Agency, S&P Global Ratings, and Fitch Ratings) and the African Development Bank (AfDB), among others have raised concerns.

Moody’s downgraded the government’s issuer rating to “B2” from “B1” previously, based on the observation that as the country’s financing needs continue to grow and the government turns to external commercial loans to fund the deficit.

According to Moody’s more pressure is likely to mount on the government’s liquidity and therefore able to repay arising liabilities in good time.

The credit rating agency however retained a “stable” outlook supported by Kenya’s strong and relatively diversified economy.

The National Treasury, however, refuted the rating, claiming the analysis was not well informed.

In totality, concerns have centered on the following areas:

• Kenya’s public debt to GDP is estimated at 56.2 percent in 2017 (rising from 44.0 percent 5-years ago, and 38.4 percent 10-years ago), and that we will use approx. 40.3 percent of our revenue raised from tax collection to finance debt payments in the fiscal year 2017/18.
• Globally accepted debt levels as per the IMF for frontier economies is 50.0 percent of GDP, and Kenya is 6.2 percent above those levels,

• The rising debt levels could result in a debt crisis,

• Possible liquidity pressure could arise from the large government debt instrument maturities, especially the 5-year Eurobond due in June 2019 that could result in further borrowing to pay off,
• As we borrow more from global markets, we become more susceptible to external market conditions and market shocks.
• The public debt to GDP ratio could soar above 60.0 percent by June 2018 unless proper policies are put in place to control this by the government.