Kenya Must Curb Borrowing to Keep Debt Affordable, IMF Says

  • Debt stock is sustainable at 49.8% of GDP, official says
  • Nation to borrow $4.6 billion from external markets this year

At the rate Kenya is borrowing to fund its spending, the East African nation could accumulate more debt than it can afford to repay comfortably, according to the International Monetary Fund.

While the nation’s current debt stock is sustainable at 49.8 percent of gross domestic product, the Treasury has at times struggled with cash management because of maturities coming in very close together, Armando Morales, the IMF’s resident representative in Kenya, said during a lecture on the country’s debt.

“At the extreme, if the government continues to accumulate debt at the current rate, it will cross the 50 percent threshold of sustainability by the year 2024,” he said at the Strathmore University in the capital, Nairobi. “But we don’t think the government wants this.”

Kenya has historically been below the standard threshold of 50 percent of the present value of its future debt obligations, according to Morales. 

The rise in interest payments was a concern and “something to be watchful about,” he said. “You need to look at not just the rise of debt, but also cost of borrowing.”

While Kenya has been able to borrow at concessional rates of about 1.6 percent and commercial rates of as low as 4 percent, the international markets will start demanding higher returns at some point, Morales said. The yield on Kenyan Eurobonds maturing in 2024 was 7.37 percent by 6:28 p.m. in Nairobi.

The government plans 462 billion shillings ($4.57 billion) of net external borrowing in the fiscal year through June 2017 and another 225.3 billion shillings from the domestic market to plug its spending shortfall, Treasury Secretary Henry Rotich said in his annual budget speech in June.

“We expect the government will move to fiscal consolidation in the medium term -- between 2021 and 2035 -- otherwise the future is going to be bleak,” Morales said.

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