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Economy

Kenya risks foreign debt burden on global recovery

Huge chunk of external debts and reduced inflows of foreign investments are set to hit developing nations such as Kenya hard even as global economy firms up its five-year recovery this year, the World Bank says.

The foreign debt repayment is particularly expected to become expensive affair this year as the United States Federal Reserve Bank begins withdrawing its massive monetary stimulus, pushing up interest rates.

“Although major tail-risks have subsided, they have not been eliminated and include fiscal policy uncertainty in the United States, protracted recovery in the euro area, and possible setbacks in China’s restructuring,” the World Bank says in its Global Economic Prospects released Tuesday.

The report titled Global Economic Prospects 2014: Coping with Policy Normalisation in High-income Countries, also peers into other risks such as commodity price fluctuations and political violence in the region including Central African Republic.

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It however leaves out military clashes in South Sudan which equally poses risk to Kenya’s export market, investment capital and infrastructure development plans.

In Kenya, external debt has suddenly grown to Sh2.3 trillion, 54 per cent of it (Sh1.26 trillion) being foreign.

France, China and Japan are top bilateral lenders to Kenya with the two Asian nations being owed Sh489 billion and Sh86.8 billion respectively.

Kenya also relies on the global economic health for export market to its goods, provide lifeline to its Sh100 billion-a-year tourism industry, sustained diaspora remittances and foreign direct investments.

Surprisingly, visiting International Monetary Fund boss Christine Lagarde praised Kenya’s fiscal discipline last week saying the country had improved both its external and domestic debt positions.

“The result is that Kenya has built a strong external position and is now in a favourable condition to tap international financial markets with the planned Eurobond issue.” Ms Lagarde said.

She however warned: “As Kenya becomes more integrated in the global economy, it is bound to be exposed to external shocks — through spillovers from trading partners’ economies or volatility in international financial markets.”

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