In their latest Debt Sustainability Analysis (DSA) assessment released in April, the World Bank and the International Monetary Fund (IMF) confirmed Kenya’s status as a country at high risk of debt crisis.After the adoption of Covid-19 control measures, which harmed economic activity, lowered tax collections, curtailed exports, and delayed the deficit reduction programme, Kenya’s debt distress profile worsened.
“Kenya’s high-risk rating reflects breaches of indicative thresholds for liquidity and solvency of the debut Eurobond the external debt service-to-export ratio, external debt service-to-revenue ratio, and present value of external debt to export ratio – in the baseline and under the most extreme shock scenarios,” the World Bank says.
The Way Out of Debt Default for Kenya
The World Bank Group states that Kenya would be removed from the list of nations with a high risk of loan default in 2028 provided the authorities stick to a plan targeted at reducing government spending and increasing taxes.
According to the multilateral lender, the country’s debt risk profile will improve in the next years as a result of predicted improvements in economic growth and exports, aided by a fiscal austerity programme.
“Kenya’s public debt burden is projected to peak in FY2022/23 and then decline consistently, with the present value (PV) of public debt set to fall below the 55 percent high-risk threshold by 2028”, said the World Bank following the $750 million (Sh81 billion) in Development Policy Operations (DPO) last week to support Kenya’s incisive growth agenda.
Ukur Yatani, Kenya’s Treasury Secretary, says the country’s deficit reduction programme will help shrink budget gaps from an estimated 8.7% of GDP in the current fiscal year to 7.5 percent in the new fiscal year starting in July, and then to 3.6 per cent in the fiscal year 2024/25.