Economy

AfDB warns of Kenya debt distress risk as more loans mature, projects 5.6pc growth

treasury

Kenya could struggle to meet its public debt obligations as more long term loans mature this year, economists at the African Development Bank (AfDB) have said. FILE PHOTO | NMG

Kenya could struggle to meet its public debt obligations as more long term loans mature this year, economists at the African Development Bank (AfDB) have said, in what appears to be a veiled warning against the borrowing frenzy.

The government has increasingly used loans to patch up its tax revenue shortfall as it continues with its race to, among other things, modernise railway lines, expand roads and upgrade sea ports.

The National Treasury is setting aside Sh658.2 billion for loans repayment in 2017/18 alone, the single-largest public expenditure item.

“Continued high public consumption expenditure keeps the budget deficit at close to 10 per cent of GDP, while the expected maturity of public debt could lead to debt distress,” the AfDB economists warn in the bank’s 2018 African economic outlook.

The Kenya Revenue Authority is expected to collect tax revenues amounting Sh1.44 trillion in the period to June, meaning 45 per cent of ordinary revenue will go towards debt settlement.

READ: Kenya to use 45pc of taxes to pay debts

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Alarming rate

The public debt has ballooned at an alarming rate, reaching Sh4.48 trillion in September, up from Sh3.5 trillion in March 2015 and Sh2.1 trillion in November 2013.

Despite the concern of high debt levels, drought and prolonged presidential election of 2017, the AfDB sees economy rebounding to GDP growth of 5.6 per cent in 2018 and 6.2 per cent in 2019.

“Kenya’s economy remains resilient due to its diversity and services contributed the highest proportion to GDP growth,” says AfDB economists in their update.

“Although not conclusively assessed, interest rate caps have reportedly constrained credit expansion, leading to reduced private sector investment.”

READ: Kenyan firms foreign debt now at Sh587bn