Increased government spending has pushed Kenya’s public debt to an unprecedented level. Data from the Central Bank shows that the public debt reached KSh7.281 trillion at the end of 2020, from KSh6.048 trillion a year earlier.
A large portion of the debt is from external sources and the rest is from domestic borrowing. External debt takes up KSh3.793 trillion of the total debt and domestic debt is KSh3.489 trillion. Kenya’s external lenders include, multilateral lending agencies like the World bank, bilateral lenders like China, and private lenders like Eurobond holders.
The cost of servicing the debt has been on a steady rise mainly due to the sharp increase in government debt, particularly external debt. Analysts at Citi research predict that Kenya’s debt servicing expenses will jump up substantially in 2024 as the country struggles to increase revenue collection and contain spending.
The Citi analysts argue that the Debt Service Suspension Initiative by G20 nations is not the solution to the debt problem in countries like Kenya. According to the researchers, the initiative will only be effective if bilateral lenders like China, multilateral lenders, and private lenders are included in the initiative.
China is one of the largest bilateral lenders to Kenya. World Bank data shows that the Chinese government loans to Kenya amounted to $7.5 billion (KSh821 billion) at the end of 2019. Analysts believe that Chinese lenders need to be involved in the debt servicing negotiations in order to provide debt relief to African nations struggling to repay their debt.
“In essence, the decisions the Chinese government makes, or does not make, in 2021 with respect to its existing loan portfolio to Africa will be a key factor in driving the debt story one way or another,” Citi Research notes.
China plans to hold a Forum on China-Africa Cooperation (FOCAC) in Senegal this year. The Asian nation will focus on three key areas during the summit, “vaccine cooperation, economic recovery and transformative development”. The forum is expected to boost relations between China and African nations. Citi Research analysts say that if China is not willing to reprofile its lending to African countries, countries with high Chinese debt like Kenya are likely to face debt service crisis in the near term.