The country’s overall public debt still carries higher risks of distress, the National Treasury has said, with the government’s total borrowing expected to hit over Sh13 trillion by June 2027 on rising spending requirements and falling revenue collections.
The exchequer, in its latest annual public debt management report for the 2022/2023 fiscal year, said that the country is already in breach of crucial debt sustainability indicators relating to solvency and liquidity ratios.
“Kenya’s overall and external public debt remains sustainable in the medium-term, but with elevated risk of debt distress,” the report reads in part.
The public debt increased by Sh1.64 trillion to Sh10.27 trillion by the end of June last year, up from Sh8.63 trillion in June 2022.
The National Treasury expects the country’s overall debt to peak at Sh13.19 trillion by June 30, 2027. By December last year, the public debt increased to Sh11.14 trillion from Sh9.2 trillion in 2022.
The Treasury said the economy’s present value (PV) of external debt-to-exports , external debt service-to-exports ratios, and the PV of the overall public debt-to-GDP ratio had breached the thresholds.
PV is a concept that states that a given amount of money today is worth more than that same amount in the future. In other words, money received in the future is not worth as much as an equal amount received today.
Painful taxation measures
Last month, Treasury raised $1.5 billion(Sh216.72 billion) through a Eurobond issued expensively to global investors to help buy back its $2 billion(Sh288.79 billion) Eurobond that was issued in 2014 and is maturing in June.
As a result, President William Ruto said the new bond issue together with the painful taxation measures that his administration is implementing has helped to pull the economy out of debt distress.
Treasury, however, said Kenya's debt remains within sustainable limits with a high risk of debt distress for both overall and external debt rating.
“The external debt burden indicators in terms of exports and revenues exceed their respective thresholds under the baseline,” Treasury said.
In the 2022/2023 fiscal year, the Kenya Revenue Authority missed its revenue target by Sh107 billion and, between July and November last year, the taxman collected Sh963.7 billion, about 34.6 percent of the Sh2.78 trillion target for the 2023/2024 fiscal year.
Compared to a similar period in the 2022/2023 financial year, KRA collected Sh856.6 billion (40 percent) of the Sh2.14 trillion annual budget.
According to Treasury, the country has breached the PV of public and publicly guaranteed (PPG) external debt-to-exports ratio, which stood at 220.4 in June 2023 against a threshold of 180, and the PPG debt service-to-exports ratio which stood at 22 against a threshold of 15.
PPG is an external obligation or debt of the private sector, the servicing of which is contractually guaranteed by a public unit or entity.
“The PV of PPG external debt-to-exports (solvency indicator) remains above the threshold (180 per cent) while through 2026, while the debt service-to-exports (liquidity indicator) exceeds its threshold (15 percent),” Treasury said.
The government, it added, has committed to a fiscal consolidation programme and optimising on the financing mix in favour of concessional borrowing to finance capital investments to reduce debt vulnerabilities.
“Additionally, a steady and strong inflow of remittances and a favourable outlook for exports will play a major role in supporting external debt sustainability,” it said.
According to the Parliamentary Budget Office (PBO), the economy is still in danger of a liquidity crisis with its key debt sustainability indicators, including debt service-to-revenue ratio and debt-to-gross domestic product (GDP) ratio headed south.
“Moreover, a significant risk of debt distress persists, primarily arising from liquidity risks, while debt dynamics remain susceptible to fluctuations in exports, exchange rates, fiscal conditions, and natural disasters,” said the PBO.
During the 2022/2023 fiscal year, the government contracted eighteen (18) new external loans equivalent to Sh345.89 billion out of which, eight were from multilateral lenders, six from bilateral lenders, and four from commercial banks.
Kenya’s debt service in June 2024 is projected to increase to Sh2.04 trillion from Sh1.19 trillion in June 2023.
This is largely due to increased external debt repayment that resulted from the depreciation of the shilling against foreign currencies within the external debt portfolio and high-interest payments on domestic debt due to the high domestic interest rate environment.
