Kenya’s appetite for loans to finance recurrent expenditure that now consumes most of total revenue could push the country’s public debt above 60 per cent of the GDP this fiscal year and hurt growth.
This underscores the government’s fiscal weakness, Commercial Bank of Africa (CBA) said in a markets note, adding that it was hurting investment in projects.
“Reduced public investment spending on development projects could consequently undermine the much-needed sustained long-term economic support that the country requires to bounce back,” the CBA said.
The government cut its growth forecast this year to 5.1 per cent from an earlier projection of 5.9 per cent and below the 5.4 per cent five-year average, as the economy met headwinds of drought, slowing credit growth and prolonged electioneering that polarised the country.
Public debt has been on an upwards trend, rising to Sh4.4 trillion by the end of September from less than a trillion shillings in mid-2014, as the State embarked on heavy infrastructure projects including the Chinese-funded standard gauge railway.
Recurrent expenditure financing now stands at nearly 90 per cent of ordinary revenue collections.
The Treasury last month said it was looking to tap another syndicated loan and a second Eurobond to refinance maturing international debt. It didn’t say how much it was seeking or when.
“The government faces the threat of a high country risk premium owing to shifting investor sentiments with respect to the evolving political landscape and monetary policy tightening in key advanced economies,” CBA said in the note.
A Budget Review and Outlook Paper released in September showed that the level of public debt to GDP ratio was expected to rise to 59 per cent this fiscal year (2017/18), from a previous target of 51.8 per cent.