As at March 2023, Kenya’s public debt-to-Gross Domestic Product (GDP) ratio was at 68.3%. Compared to 67.2% at the end of 2022, it is clear that Kenya is facing a debt crisis.
Comparatively, this is well above the East African Community (EAC) convergence threshold of 50%.
Data from the Treasury and the Central Bank of Kenya (CBK) place Kenya’s debt stock at Ksh10.189 trillion ($69.3 billion) at the end of June 2023 in contrast to Ksh8. 579 trillion ($58.4 billion) in June 2022.
What’s making it worse? The expensive cost of servicing this debt keeping in mind that interest rates have risen globally.
In 2022, Kenya spent Ksh 1.2 trillion (US$10.2 billion) on debt servicing, equivalent to 21% of its total revenue. This is a significant burden on the government’s budget, and it is likely to become even more difficult to manage in the coming years.
Also Read: Kenya Has Exceeded its Debt Payment by Over Ksh.1 Trillion – Senator Okiya
And – it does not help that the most well-known debt rating service in the world – Fitch revised Kenyans Outlook on Kenya’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and affirmed the IDR at ‘B’.
Bottom line – If Kenya is unable to service its debts, it could default on its loans.
This would have a number of negative consequences, including:
- Damage to Kenya’s credit rating: This would make it even more expensive for Kenya to borrow money in the future.
- Loss of access to international capital markets: This would make it difficult for Kenya to finance its budget deficit and invest in its economy.
- Economic recession: This would lead to job losses, business closures, and a decline in living standards.
Debt crisis: Is an auction an option?
An auction is a process in which the government sells its assets to raise money. This could be an option for Kenya if it defaults on its loans.
This could be part of the strategy by the Kenya National Treasury that has set in motion the process of selling nearly a dozen government-controlled entities either in a bid to free up cash flow that supports the parastatals or as part of raising money to pay for the back breaking debt we find ourselves.
However, there are a number of challenges associated with this approach:
- The government would need to identify and value its assets: This would be a complex and time-consuming process.
- The government would need to find buyers for its assets: This could be difficult, as there may not be enough demand for Kenyan assets.
- The government would need to ensure that the auction is transparent and fair: This would be important to avoid accusations of corruption.
Overall, an auction is not a straightforward solution to Kenya’s debt crisis. It is a complex and risky option that should only be considered as a last resort.
What are the alternatives to an auction?
There are a number of other options that Kenya could consider if it defaults on its loans. These include:
- Restructuring its debt: This would involve renegotiating the terms of its loans with its creditors.
- Seeking debt relief from international lenders: This would involve asking its creditors to forgive or reduce its debts.
- Implementing austerity measures: This would involve cutting government spending and raising taxes. We are seeing this in the last couple of months.
All of these options would be difficult, but they would be a more sustainable way to address Kenya’s debt crisis than an auction.
Also Read: Boost for Ruto as IMF Agrees to Give Kenya Ksh142 Billion Loan
Conclusion
Kenya’s debt crisis is a serious problem that could have a devastating impact on the country’s economy. It is important for the government to take steps to address this crisis as soon as possible. However, it is also important to do so in a way that is sustainable and does not further harm the economy.
