China is the leading bilateral lender to Kenya, accounting for 67% of its external debt followed by Japan(14%), France(7%) with other countries accounting for 11%.
This is according to a status report on Kenya’s Public Debt presented to the Senate Committee on Finance and Budget by the Central Bank of Kenya (CBK) Governor Dr Patrick Njoroge on September 15th 2021.
China has invested heavily in infrastructure projects
China has invested heavily in several big-ticket infrastructure projects that include the Standard Gauge Railway as well as major road networks
Kenya’s total debt service to revenues increased to 57% in 2019 from 17 per cent in 2012 due to an increased debt stock and changing terms on new loans including one-off repayment of syndicated loans and Eurobonds in 2019.
“This trend is expected to reverse in the medium term due to improving terms on new loans, and the restructuring of external commercial loans that have heavy maturities and high interest cost,” Dr Njoroge told the Senate Committee.
While Kenya’s public debt to GDP ratio declined from 64.1% in June 2003 to 38.1% in June 2012, it has since increased thereafter driven largely by spending on infrastructure and more recently, COVID-19 related spending.
According to the latest CBK Weekly Bulletin, Kenya’s domestic debt hit KSh 3,866.06 Billion as of September 10th 2021 compared to KSh 3488.54 Billion on 31st December 2020 and KSh 3569.84 Billion on 31st March 2021.
Banks are the biggest holders of Government domestic debt at 50.55% on September 10th 2021 followed by Pension funds(31.21%), Insurance companies( 6.68%), others(6.11%) and parastatals( 5.45%).
Remittance inflows totalled US$ 312.9 million in August 2021 compared to US$ 274.1 million in August 2020, a 14.2 per cent increase. However, remittance inflows declined by 7.1 per cent compared to US$ 336.7 million in July, in line with seasonal factors. The cumulative inflows for the 12 months to August 2021 totalled US$ 3,481 million compared to USD 2,921 million in the same period in 2020, a 19.2 per cent increase.
The United States of America continues to be the largest source of remittances into Kenya, accounting for 46.8 per cent in August 2021.
According to CBK, Kenya external debt burden has worsened due to increased fiscal deficit largely due to development expenditure on infrastructure but also recurrent on education and health, and increased guaranteed debt.
Kenya has also experienced worsening terms on new loans, such as lower concessionality and increased commercial loans; and exogenous economic shocks, such as drought or COVID-19.
In March 2021, the IMF assessed Kenya’s public and publicly guaranteed debt as sustainable but with a high risk of debt distress
Kenya’s debt was subjected to lower thresholds and benchmarks during this assessment due to a downgrade in the debt carrying capacity from strong to medium debt carrying capacity majorly due to subdued world growth driven by the COVID-19 pandemic.
The main factors driving this assessment were high deficits from the past and the COVID-19 shock and a sharp decline in exports and economic growth caused by the pandemic.
The assessment found the main risks to Kenya’s Debt Sustainability Analysis outlook as Financial weaknesses in State-Owned Enterprises (SOEs), subdued export growth, and economic impact of the COVID-19 pandemic.
CBK maintains that Kenya’s debt sustainability is expected to improve as fiscal consolidation progresses and exports and output recover from the global shock.
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