News Analysis
Precarious
situation
on Kenya’s
debt ratio,
a red alert
for local
borrowers
If the prevailing appetite for debt persists, the World Bank predicts that
Kenya risks not getting a return on investment for its infrastructure. As at
end of 2016, Kenya’s public debt stood at Kshs 3.6 trillion up from Kshs 1.5
trillion in 2012, and now the rate of government borrowing has exceeded
the country’s GDP growth rate.
By George Wainana
[email protected]
Of the entire debt, foreign
debt accounted for Kshs 1.7 trillion,
and Kshs 1.85 trillion was borrowed
internally. In the 2017-2018 financial
year the debt is expected to stabilize
at 55 percent of GDP.
At a moment when the macro
and larger economy are reeling from
the effects of a prolonged election
period, a surging public debt ratio is
unwelcome news for the domestic
market especially when the figures
already show that the government
6 | THINK BUSINESS • NOVEMBER 2017
has borrowed more domestically than
it has externally.
Debt Overhang and crowding
out
Caveats from the World Bank
and the IMF have clearly indicated
that Kenya’s public debt may soon
prove unsustainable. Debt overhang
is when there is a future likelihood
that debt accrued may exceed
the country’s ability to repay it.
The outcome could mean loss of
confidence from the internal and
external investors.
Similarly, if a greater portion
of resources are geared towards
servicing foreign debt then this
jeopardizes efforts geared towards
investment and growth. Either way
the cookie crumbles. However with
proper management from public
resources, public borrowing is
inevitable and it could be used to spur
economic growth.
One avenue that borrowing can
stimulate economic growth is through
appropriate distribution of resources
to individuals or sectors of the
economy that harbor prospects for
great productivity. However, in Kenya,
the debt that has been channeled to
finance infrastructural development
has come at the great expense of the
local investors and has exposed the
country to a liquidity crunch.