The International Monetary Fund(IMF) has raised Kenya’s risk of debt distress to high from moderate in a recent assessment.
Kenya’s debt stood at 61.7% of GDP at the end of 2019, up from 50.2% at the end of 2015, the IMF said, driven up by gaping budget deficits. The country embarked on large infrastructure projects such as the new Standard Gauge Railway line which relied on external debt.
“The risk of debt distress has moved to high from moderate due to the impact of the global COVID-19 crisis which exacerbated existing vulnerabilities,” IMF said.
The international financial institution said huge cuts on VAT and Income Tax have worsened Kenya’s ability to raise revenue and hit other indicators. The fund, however reckons the debt is still sustainable.
While approving recent disbursement of $739 million in emergency funding to Kenya to help it tackle the COVID-19 crisis, the IMF pushed its insistence of a fiscal consolidation program to the back burners.
In January 2020, Treasury released KSh 10 billion to China’s Exim Bank as it began repayment of a loan used to construct the Standard Gauge Railway(SGR).
Six years ago, Kenya signed a loan agreement with China’s Exim Bank for $3.233 billion (KSh324.01 billion) for the SGR project. The sum comprised of $1.633 billion commercial loan and $1.6 billion concessional grant to build the 385km modern railway between Mombasa and Nairobi.
Loan repayments to Exim Bank of China will increase to KSh 84.3 billion in the 2020/2021 and KSh 111.4 billion in the 2021-22 budget periods.