Economy at risk as Kenya borrowing surpasses 50% limit

NAIROBI—The Kenya Institute for Public Policy Research and Analysis (Kippra) has warned that Nairobi’s volume of public debt as a ratio of GDP has already surpassed the 50 per cent limit set by East Africa Community member States.

Kenya’s insatiable appetite for loans to fund mega projects poses a risk to the economy and narrows the window for future borrowing in the event of emergencies.

“The high level of public debt in Kenya narrows the window for future borrowing, and increases vulnerability to fiscal risk in the event of any urgent need for borrowing,” says the institute in its latest economic update titled Kenya Economic Report 2017.

As at March 2017, Kenya’s gross public debt stood at Sh4.04 trillion – equivalent to 52.6 per cent of GDP – according to latest data from the Treasury.

A majority of President Uhuru Kenyatta’s flagship infrastructure projects are funded through debt mainly from China.

“Kenya’s public debt was above the EAC convergence criteria threshold of 50 per cent of GDP,” says the report released on Tuesday last week.

The borrowing frenzy has been fuelled by the debut Eurobond as well as China, which has recently upped the ante in doling out loans to Kenya, overtaking Japan as Nairobi’s biggest bilateral lender.

Kenya had a total public debt mountain of Sh1.89 trillion in June 2013, equivalent to 42.0 per cent of GDP, meaning the burden has more than doubled under the UhuRuto regime.

The taxman collected Sh1.365 trillion in the year ended June 2017, translating to a public debt-to revenue ratio of 296 per cent, missing the Treasury’s target of lowering it to around 198.3 per cent this year.

The International Monetary Fund had earlier also issued a similar warning to that of Kippra.