Trends of the Public Debt in Kenya

Post Date: 14 September 2018   |   Category: Debt   |   Hits: 3881

The institute of Economic Affairs-Kenya is undertaking a study on the public debt in Kenya. The study entails analyzing and tracking of Kenya's current debt levels including an analysis of revenue, taxation and public expenditure trends. In order to enhance understating of the facts concerning Kenya’s debt a series of short blogs will be generated for each week running for a year. This is the first of the 45 series of blogs that will be generated. It looks at the current trend of both the domestic and external debt stock in order to provide the current state of affairs and the general direction debt accumulation.

Source: Central bank of Kenya

As at March 2018, the total stock of debt in Kenya amounted to Ksh 4.9 trillion, comprising Ksh 2.37 trillion domestic and Ksh 2.51 trillion external debt. 

Number of the Week:  106,000 

  • The current public debt stock (Ksh 4.9 trillion) translates to Ksh 106,000 per Kenyan and 
  • At the end of 2017, the total debt stock amounted to Ksh 4.57 trillion, compared to Kenya’s GDP of Ksh 7.7 trillion, translating the share of debt to be 59.3% of GDP.
  • By the end of February 2013, the total debt stock was Ksh 1.78 trillion which implies that in the last five years, the total debt has increased by a factor of 2.8, that is, almost three times compared to when Jubilee Administration took over power. 

Though borrowing in itself is not a bad policy option from the reasoning that it helps in stabilizing the economy. Choosing to borrow over high domestic taxes helps the economy improves by releasing the individuals and firms from tax burden. As a consequence, there is high propensity for individuals and firms to engage in economic activities increases, an effect known as crowding in. The government can also acquire infrastructure in the short term so that it can be utilized by economic agents as it spreads its payment in the future.

However, implications of the steady rise in the stock include increase in debt servicing obligations which consequently shrinks the budget for other development activities. As the debt stock rises, so does the interest payments which may pose a challenge on the country’s cashflow. Government may resort to increase in domestic taxes to service the debt, this may further affect the economy through crowding out the private investment which leads to reduced economic progress. 

The recent trend in heavy bilateral borrowing for instance from China and the Eurobond may further increase the debt default risk. 

As a way forward there need to have austerity measures by reducing the deficit financing and focusing on efficient utilization of public funds. This includes improved management of mega projects such as Standard Guage Railway (SGR) to enhance profitability in order to contribute significantly in servicing the loans. The government and all the stakeholders need to increase the effort in curbing corruption by enhancing transparency of the procurement and other financial records and accountability. There is also need to reduce on deficit financing in order to minimize dependence on borrowing. Greater focus should also be directed towards sealing the loopholes in revenue wastages through enhanced automation of taxes.