Kenya's Debt Expected to Hit U.S.$204 Billion By 2030

Kenya's public debt is growing at a rate that by far exceeds forecasts by Parliament and the Executive.

Projections now indicate the worrying trend could see the country's debt burden account for close to 130 per cent of Gross Domestic Product (GDP) by 2030.

Though the Parliamentary Budget Office (PBO) projects that public debt will account for 100 per cent of the GDP by 2030, going by trends set by the Jubilee administration over the past eight years and putting particular focus on the past year since the onset of the Covid-19 pandemic, arithmetically Kenya's public debt will be more than Sh22 trillion in the next decade.

In January this year, the PBO, in its Debt Stock Analysis and Forecast, revised its September 2020 projections upwards, indicating the country's debt will have shot up to Sh7.8 trillion by the end of June (from September's figure of Sh7.5 trillion), be about Sh9 trillion by June next year and hit Sh10 trillion by June 2023.

"This trend is projected to continue over the medium term as the expansionary economic blueprint, the need for fiscal stimulus and debt servicing obligations continue to drive expenditures even as revenue generation remains low and the economy continues to underperform," PBO stated.

Public debt

The parliamentary budget agency's forecast is that public debt will account for 69 per cent of the GDP and 87 per cent of total debt ceiling in the current FY, while debt stock will double by 2030 to account for 100 per cent of GDP.

The office goes further to project that public debt will increase by about or more than Sh1 trillion from 2023 up to 2030, when Kenya will have a debt burden of about Sh17.5 trillion, equivalent to 100 per cent of the GDP.

"Debt repayment expenditure, estimated at Sh925 billion in FY 2020/21, will reach Sh1.023 trillion by the end of FY 2021/22. To manage this situation, lengthening the maturity of existing securities may be necessary even though this will transfer debt to future generations," the office further warns.

But the projections by PBO and the Treasury could still be inaccurate, going by past realities where government's borrowing has always surpassed prior estimates and forecasts.

Between June 2013 when the Jubilee government took over the country's leadership and June 2020, Kenya's public debt had risen by 254 per cent, moving from Sh1.89 trillion to Sh6.69 trillion.

That figure dramatically changes to a rate of about 297 per cent just by including the months after June 2020, showing the worrying trend of the country's debt stock.

Appetite for borrowing

Going by the trends of the past eight years, increasing debt stock from less than Sh300 million per year to more than Sh1 trillion yearly and especially with the renewed borrowing appetite since the onset of the Covid-19 pandemic, projections show that by 2030 Kenya's public debt will be above Sh22.3 trillion.

Compared to the PBO figure of about Sh17.5 trillion in public debt by 2030 (or 100 per cent of the country's GDP by then), these projections warn that in the next decade, the country's public debt will be 127.3 per cent of the GDP.

By September last year, the public debt (Sh7.12 trillion) accounted for 65.6 per cent of the GDP and 79 per cent of the Public Finance Management (PFM) debt ceiling, due to expenditure pressures related to infrastructure projects and debt servicing, even as the government continued to experience declines in revenue generation.

Currently, the debt is above Sh7.5 trillion, just by summing the Sh7.25 trillion debt by November as per the Central Bank of Kenya's (CBK) latest update, and the Sh257 billion loan that Kenya secured from the International Monetary Fund (IMF) recently.

But documents from both Treasury and the PBO have been playing catch-up to reality insofar as projecting the country's public debt trends goes, forcing the two institutions to adjust their figures frequently due to the government's insatiable appetite for borrowing.

For instance, by September last year, projections from the National Treasury showed that the country's public debt would be about or less than Sh7 trillion by June this year, a figure that has already been crossed.

Guaranteed debt

The document projected that Kenya's public debt would only pass the Sh7 trillion mark slightly by June 2022, but still remain below Sh8 trillion by 2023 and only slightly pass the Sh8 trillion mark by June 2024.

The PBO in the same month projected that it would take up to June this year for the country's public debt to cross the Sh7.5 trillion mark, and only hit Sh8 trillion mark by June next year, but still remain below Sh9 trillion the current debt ceiling by June 2023.

The office then projected that Kenya would cross the Sh10 trillion public debt mark only after the Financial Year 2023/24.

The rising level of guaranteed debt has also posed a big concern for the office, which now warns that it is putting the country's debt position at risk.

"As of June 2020, guaranteed debt amounted to Sh165.2 billion, reflecting a 276 per cent increase since June 2015. This increase is a result of an increase in commercial debt - Sh79.9 billion (guarantee provided to Kenya Airways) and bilateral credit of Sh80.6 billion (guarantees to capital projects undertaken by Ken-Gen and the Kenya Ports Authority). Debt guarantees are given subject to Article 213 of the Constitution and Section 58 of the PFM Act. Given its stock level, strict adherence to legal provisions will be key in minimising this contingent liability risk and maximising the economic impact of debt guarantees," the PBO notes.

The office also notes that even though the Jubilee administration has been generous in spending on major road, rail and energy infrastructure projects, "the revenues have been underperforming and hence this expenditure has over time been financed through increasingly expensive debt."

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