S&P says increasing debt largest threat to the Kenyan economy

Piling public debt poses the largest risk to Kenya’s economy in the medium term, an analyst at credit ratings agency Standard & Poor’s has said.

Garder Rusike, an associate director in charge of sovereign rating and public finance at S&P Global Ratings, said on Wednesday Kenya could struggle to honour repayments in case of economic shock hence the need to cut the budget deficit and stabilise debt level.

Kenya’s public debt crossed the Sh4 trillion mark at the end of March this year, reflecting the government’s sharp appetite for loans.

“The current high level of debt stock is a risk to the economy in the sense that the cost of debt servicing is also high and if there is a shock to the pace of economic growth it can (risk) rise substantially,” said Mr Rusike on the sidelines of an S&P global seminar in Nairobi.

“So, it’s important to maintain the pace of economic growth while at the same time reducing the size of the deficit which will then reduce the debt burden.”

READ: Kenya spends more on debt than development

The Central Bank of Kenya (CBK) has projected the economy will grow by 5.7 per cent this year, slowing down from 5.9 per cent in 2016. 

The Treasury targets to reduce the fiscal deficit to six per cent of GDP, from a projected 8.3 per cent in the financial year 2017.

The country’s debt stock is an equivalent of more than half (52.6 per cent) of the gross domestic product (GDP), after massive borrowing since the Jubilee administration took power four years ago.

Treasury secretary Henry Rotich told Parliament that the government would “reduce the fiscal deficit and ensure the continued sustainability of our debt.”