Kenya’s Risk of Defaulting on Loan Repayment Increases from Moderate to Low

Kenya’s risk of defaulting on debt repayment has increased from moderate to low, says the International Monetary Fund (IMF).

IMF is concerned that the country hasn’t taken significant steps towards the right initiatives meant to reduce the rising debts urging the government to further amend fiscal deficits for debt sustainability.

According to IMF, the adjustment efforts should be directed to expenditure and revenue to secure enough space for “planned growth-enhancing public investment and key social programs, including the country’s Big Four development agenda.”

Nevertheless, the lender claims that its board is impressed with the measures the government has implemented for the fiscal adjustment in 2017/18 and 2018/19 financial years. IMF agrees that the ambitious plans Kenya has in place will reduce the debt crisis.

“Kenya’s public debt has increased due to revenue shortfalls that haven’t been aligned by spending cuts,” said the IMF.

The lender further notes that the controls of the bank interest rate continue to act as a bottleneck to small and medium-sized enterprises access to funds, growth, and monetary policy.

IMF has advised that the country needs to take the right steps to bolden the financial sector as well as the business sector alongside repealing or significantly modifying the interest cap rates introduced in September 2016.

Among the things the IMF has suggested to be removed includes delinking the lending rate cap and the central bank policy rate, doing away with the floor on deposit rates, and an elevation of the lending cap to levels that allows the consumer to be protected from inappropriate practices.

According to estimations, the country’s total public debt is projected to hit 63.2 percent of the GDP in 2018 and gradually reduce over the medium term. In 2017, the percentage stood at 58 and in 2016, it was 53.2 percent.

Admittedly, the fiscal vulnerabilities in the country are hard to ignore. Refinancing risks have increased and safety margins are low. IMF says that Kenya’s reliance on debt also continues to increase the interest payments on public debt to almost one-fifth of revenue, something which has placed the country at the top quartile among its peers.