Kenya’s debt still manageable – Economist

Barclays Africa Senior Economist, Samantha Sigh, has said Kenya should focus on increasing revenue collection in the 2018 – 2019 financial year, noting, however, that the debt is still within manageable levels.

Sigh was speaking at a post-budget analysis meeting following the budget speech last week by National Treasury where the government revealed that it will be spending more than a half of the country’s domestic revenue to clear maturing debts, including the Sh220 billion 2014 Eurobond.

Debt service for the coming financial year is expected to reach Sh870.6 billion, which represents a 25.79 percent compound growth from three years ago.

“There are a lot of measures that have been put forward to increase government revenues, some of the targets seem to be ambitious,” Sigh says.

Kenya has been spending 20 percent of its budget expenditure on debt repayment, spending billions on public debt repayments.

The country’s public debt to GDP is estimated at 56.2 percent (2017), against IMF’s globally accepted levels of 50.0 percent.

According to the government, rising debt has been driven by an ever-expansionary budget over the years owing to infrastructural projects such as the construction of the Standard Gauge Railway.

“As a country, we have come a long way. There were numerous obstacles that we found along the way. We had a huge infrastructure gap, our capacity of producing energy was very limited, we needed to modernize the education system and the healthcare system was overstretched,” Rotich said in Parliament, last week while defending the rise in yearly budgetary allocations.

Cytonn Investments have also attributed the rise in debt to a shortfall in tax revenue that has resulted in a widening budget deficit despite goals to reduce this to 3.4 percent of the GDP by the fiscal year 2020/2021.

China remains Kenya’s largest bilateral lender, having lent a total of Sh520 billion as of December 2017, compared to Japan’s Sh82.5 billion and France’s Sh62.3 billion.

Rotich further revealed that the government intends to borrow Sh300 billion from the international market this financial year.

This means the country could be headed for a third round of borrowing through the issuance of a Eurobond under the planned commercial debt-financed deficit worth Sh300 billion. It would be the third issue of a Eurobond, after the two previous issues of June 2014 and February 2018.

Anne Bundi, Senior Tax Consultant at EY says there is still concern over Kenya’s debt load which has an indirect and un-proportional relationship to revenue growth indicating a potential risk of widening the gap and consequential pressure on the government to repay loans.