Kenya’s public debt to hit Sh9tr mark, report shows

Written by Inka FM on 23 August 2022

Kenya’s public debt is headed towards the Sh9 trillion mark, latest data from the National Treasury shows, as the economy goes through an uncertain political period. The prolonged electioneering period, following a hotly contested presidential election, awaits a hearing at the Supreme Court, as analysts raise concern about effects on Kenya’s fiscal space due to the election.

The Quarterly Economic and Budgetary Review Report says Kenya’s public debt has increased by an 11.5 per cent to Sh8.6 trillion during the 2021/2022 financial year compared to Sh7.7 trillion recorded in June 2021. This leaves a narrow window of Sh400 billion to the previous Sh9 trillion ceiling set by the government.

Over that period, the country’s public debt rose by Sh822.5 billion with both external and domestic debt now standing at Sh4.3 trillion each. In effect, the next administration will implement a Sh33.3 trillion budget for the financial year 2022/23, with the country expected to borrow some Sh846 billion, as the debt expands by the day.

Uncertainty continues

Samuel Nyandemo, a senior economics lecturer at the University of Nairobi said uncertainty continues as many investors hold the wait-and-see stance to see who will lead the next administration before deciding whether to invest in the country or not. “It has created a lot of uncertainty. Many investors will adopt a wait and see approach. It will affect not only investment but also service delivery,” Nyandemo said. He said some firms operating in the country may choose to operate at half capacity until the matter is resolved which means the productive sectors will be under great pressure. The situation is made worse by depreciation of the shilling and turmoil in some of Kenya’s key source markets such as Ukraine.

“The gross public debt comprised of 50 per cent external debt and 50 percent domestic debt. The increase in the public debt is attributed to external loan disbursements, exchange rate fluctuation, and the uptake of domestic debt during the period,” reads the report in part.

Gross domestic debt increased by Sh591.2 billion to Sh4.3 billion in June 2022 compared to Sh3.7 billion in June 2021. While Kenya’s external debt (in dollar terms) reduced by five percent from $37.1 million in June 2021 to $35.3 million in June 2022, the external debt actually increased by Sh156 billion in terms of Kenya shillings due to a weakening shilling.

External creditors

By the end of June 2022, the total cumulative debt service payments to external creditors amounted to Sh305.3 billion. This comprised Sh184.5 billion (60.4 percent) principal and Sh120.8 billion (39.6 percent) interest.

The Medium-Term Debt Management Strategy FY 2022/2023, domestic market will be the main source of financing fiscal deficit of Sh846 billion as borrowing gross strategy is external 25 percent and domestic 75 per cent.