Kenya’s Public Debt: The long And Winding Path To Sustainability

Kenya’s total nominal public and publicly guaranteed debt stock stood at KES 10.28 tn (equivalent to 70.8% of GDP), as of the end of June 2023. We observe that public debt has been growing faster than other macro-economic indicators including GDP – ‘the borrowing binge’.

Notably, short-term debt (treasury bills) has been steadily declining over the years as long-term debt (treasury bonds) increases, an indication that the government is progressively reducing rollover risks.

Key concerns remain the steady depreciation of the shilling against the dollar given that almost 70% of external debt is dollar-denominated (52.9% of total debt is foreign currency).

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Case in point, the amount of debt in dollars had increased by approximately KES 649.6 bn by the end of June 2023 in tandem with a 13.9% depreciation of the Kenyan shilling against the US dollar. This implies that for every unit the shilling depreciates, the country’s external debt in US dollars increases by approximately KES 37.9 bn.

On Entangled in Debt: Will Kenya wiggle out? Kenya’s debt remains an interconnected network of financial commitments and liabilities, as the country is highly indebted to multiple creditors, and the debts are intricately interdependent in the sense that we must borrow to service the existing debt.

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With a USD 2.0bn Eurobond set to mature in less than a year, USD 900.0mn, and USD 1.0bn shortly after, concerns remain high on the country’s solvency. However, Kenya has a good history of debt repayment and has yet to default on any of its debt. Several tools under its arsenal include tax increases, revenue enhancement, and external support from international institutions.

Staring in the eyes of a default- Compared to Ghana and Zimbabwe, Kenya’s macroeconomic indicators remain under control, despite the elevated perceived default risks. International organizations like the World Bank and International Monetary Fund have remained supportive which continues to boost investor confidence in the country’s abilities to meet its obligations.

In addition, bilateral lenders have restructured several loans to ensure that the debt is more manageable and that the country gets favorable terms to finance its debt. With all the initiatives, and a little prayer – Kenya may yet be able to pull through albeit in a bumpy and noisy way.

With a reasonably diversified economy with multiple sources of foreign exchange sources, Kenya can count on solid agriculture-related exports, tourism receipts, and diaspora remittances. With the currency having depreciated, imports are down 12% year to date as exports have held up.

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