The World Bank Group says it is likely to remove Kenya from countries with high risk of default on loans in 2028 if the authorities stick to a programme aimed to curtailing growth in government expenditure and growing taxes.
The multilateral lender says it expects the country’s debt risk profile to improve in coming years on projected recovery in economic growth and exports, helped by fiscal consolidation programme and implementation of policy reforms.
“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,” World Bank wrote in the report following the $750 million (Sh81 billion) under the Development Policy Operations (DPO) last week.
High risk benchmark is when country’s debt carrying capacity is stretched although is not currently facing any repayment difficulties.
Treasury Secretary Ukur Yatani projects the country’s fiscal consolidation programme will help narrow gaps in budget (fiscal deficit) from estimated 8.7 percent of gross domestic product (GDP) in the current financial year to 7.5 percent in new fiscal year from July and further to 3.6 percent in 2024/25 fiscal year.
The World Bank and International Monetary Fund (IMF) in latest Debt Sustainability Analysis (DSA) report in April upheld Kenya’s classification amongst countries with high risk of debt distress.
Kenya’s debt distress profile dropped to high from moderate in May last year after the onset of Covid-19 containment measures hurt economic activities, depressed tax collections, cut exports and delayed implementation of the fiscal consolidation programme.
“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.