For every Sh100 the Kenyan Government collects in revenue, Sh25 will soon go towards servicing debt, the International Monetary Fund (IMF) has warned.
The lender of last resort said yesterday the country’s debt burden was hurtling towards unsustainable levels, with the bulk of total revenues being gobbled up by debts.
The current state of affairs, the Bretton Woods institution said, had left the Government with little cash to pay salaries, pensions or furnish public hospitals with essential medication.
IMF Resident Representative for Kenya Jan Mikkelsen said the cost of servicing debt had reached alarming levels.
The country’s public debt stock surged to a whooping Sh4.5 trillion as of September this year, up from Sh1.8 trillion in March 2013 when President Uhuru Kenyatta’s Jubilee Government first came to power.
The IMF in its Regional Economic Outlook for sub-Saharan Africa released last month said the country’s ratio of debt to real GDP had since increased from 44 per cent in 2013 to 52.6 per cent last year, an indicator that the country is not producing fast enough to service its debts.
Another sovereign bond
This is expected to reach 56.2 per cent, according to the bank of last resort, with Mr Mikkelsen projecting it climb up to 60 per cent.
The IMF report also cited Kenya as among 22 countries where public debt rose above 50 per cent of GDP at the end of year as the country binge-borrowed to finance infrastructural projects such as the Standard Gauge Railway (SGR) and new roads.
National Treasury Cabinet Secretary Henry Rotich recently revealed that the Government would soon issue another sovereign bond, most likely a Eurobond, with the proceeds expected to go towards paying off a syndicated loan of Sh77 billion that was supposed to mature at the end of October.
The Government is said to have negotiated for the repayment date to be rescheduled to April 2018 as it tried once again to woo international investors.
The last time the Government went for a Eurobond was in 2014 when it raised over Sh200 billion, part of which was used to offset another syndicated loan that had reached maturity.
The country’s undoing in this debt debacle is the fact that productivity remains subdued, with the rate at which the country is accumulating debt outpacing the rate at which finished goods and services are being produced.
Although the Government expects to reap the dividend of increased public investment in the future, there are fears that in the short run, it is simply placing pressure on the country’s fiscal policy.
Kenya, said the IMF, is one of the non-resource-intensive countries where fiscal risks had started materialise.
“Development spending is up 10 per cent of GDP. That is a good thing, but it needs to be done more efficiently,” said Mikkelsen.
Among IMF’s prescription to reduce the country’s expanding fiscal deficit includes Government cuts on roads, rails and ports, firing of civil servants or freezing employment and aggressively going after tax defaulters.