Kenya’s debt burden may double
What you need to know:
- The study by global consulting firm Control Risks, says the country’s debt burden for East Africa’s biggest economy could grow two-fold because Treasury is “running huge deficits”.
- Kenya has, for instance, committed to borrowing billions of shillings to finance mega public infrastructure projects in the recent past including building the standard gauge railway line between the port city of Mombasa and Nairobi.
- The global lender noted that foreign debt repayment is expected to become expensive as the United States Federal Reserve Bank starts withdrawing its monetary stimulus this year, thus increasing interest rates.
Kenya’s debt burden could double in the next two years as a result of failure by the government to tackle key structural issues related to the economy, warns a new report.
The study by global consulting firm Control Risks, says the country’s debt burden for East Africa’s biggest economy could grow two-fold because Treasury is “running huge deficits”.
“Governments (in Africa) have so far failed to tackle key structural issues … Kenya, as one of the best-governed countries in the region, is running big deficits and debt loads will double by 2017,” Mr Daniel Heal, the Control Risks managing director for East Africa, said in a statement.
The report says as at the beginning of 2015, economic growth in sub-Saharan Africa had outpaced political reform and governments had so far failed to tackle key structural issues.
“Large inward investment in East African energy and the prospect of a resource boom is putting pressure on political arrangements,” says the report titled RiskMap 2015.
POLITICAL LIMITS
Mr Heal warned that this year, some of the political limits to sub-Saharan Africa’s impressive growth story will start exposing themselves.
Kenya has, for instance, committed to borrowing billions of shillings to finance mega public infrastructure projects in the recent past including building the standard gauge railway line between the port city of Mombasa and Nairobi.
The country has also equally borrowed billions of shillings to finance power generation and road construction.
Kenya’s current external debt stands at Sh2.3 trillion, 54 per cent of it, or Sh1.26 trillion being foreign.
Last year, Treasury got parliamentary approval to raise the maximum amount it can borrow from Sh1.2 trillion to Sh2.5 trillion, citing the need for more capital to fund flagship projects.
The World Bank last month warned that external debts and reduced inflows of foreign investments are set to hit developing nations such as Kenya hard.
FOREIGN DEBT REPAYMENT
The global lender noted that foreign debt repayment is expected to become expensive as the United States Federal Reserve Bank starts withdrawing its monetary stimulus this year, thus increasing interest rates.
The International Monetary Fund last month praised Kenya’s fiscal discipline, saying that the country had improved both its external and domestic debt positions.
IMF Chief Christine Lagarde, however, warned that as the country becomes more integrated in the global economy, it will be exposed to external shocks, mainly through volatility in international financial markets.
