According to data from the Central Bank of Kenya’s (CBK) weekly bulletin, Kenya’s public and publicly guaranteed external debt increased by 32.0% to KES 5.7 trillion in August 2023 from KES 4.3 trillion in August the previous year.
This growth rate was approximately three times higher than the growth rate of the country’s domestic debt. Domestic debt during the same period grew by 11.0% to KES 4.8 trillion in August 2023 from KES 4.3 trillion in August the previous year. Currently, domestic debt accounts for 45.7% of the country’s total debt.
Public Guaranteed External Debt (USD billion) increased by 8.4% to KES 39.29 billion in August 2023 from KES 36.23 billion in April 2022. While this growth rate was lower compared to the other debt classes, the drastic depreciation of the Kenyan Shilling against the dollar by 21.0% to KES 145.4 in August 2023 from KES 120.1 in August the previous year inflates the debt even further.
The growth of Kenya’s external debt has been a matter of concern for some time. While the debt has had its merits in terms of financing major infrastructural developments in the country and funding government activities, the downsides cannot be understated. One of the concerns has been the government’s policies, which appear to reflect the tough economic challenges faced by Kenyans.
International lenders, whether bilateral or multilateral institutions, often attach stringent conditionalities when providing external loans, such as economic and fiscal reforms, as exemplified by the unpopular Finance Act 2023.
There are other concerns regarding this growing external borrowing. The global economy is inherently unpredictable, and Kenya’s exposure to global economic downturns is high. Given the complicated geopolitical landscape, the risk may be closer than anticipated. Economic shocks can disrupt the capacity to service debt, leading to fiscal stress and potentially necessitating emergency measures like austerity programs or loan restructurings.
Finally, as external debt grows, interest payments on that debt increase. A significant portion of Kenya’s budget is already allocated to servicing debt, and a larger debt burden implies a more substantial allocation of resources to interest payments. This diverts funds that could otherwise be invested in critical areas like healthcare, education, or infrastructure.
One advantage of government borrowing externally is that it does not compete with local businesses for credit. However, this does not seem to be the case in Kenya, as the government has recently been offering very attractive rates for its securities, leading to weeks of oversubscription to these securities.
It is no secret that Kenya has a debt problem, and the government must strike a balance between all debt sectors and make informed decisions that align with the prudent management of that debt. Balancing the growth of public external debt with domestic debt will be key to securing a prosperous and stable financial future.
