Record Surge in Kenya's Debt Despite Pledge to Curb Borrowing

Bullion Bite

Kenya's mounting debt has reached unprecedented levels, contradicting President William Ruto's commitment to quell the nation's thirst for loans, official figures from the treasury have revealed.

In the fiscal year concluding on June 30, the total public debt surged by a staggering 1.56 trillion shillings ($10.8 billion), propelling it to 10.1 trillion shillings ($70.75 billion) – an alarming breach of the 10 trillion shilling debt ceiling, according to the data disclosed on Tuesday.

The treasury attributed the surge in public debt to a combination of external loan disbursements, exchange rate fluctuations, and the uptake of domestic and foreign debt.

Escalating loan repayment obligations, primarily to China, have surged as the local currency plummeted to a historic low of approximately 144 shillings against the dollar.

Global credit rating agencies, including Fitch Ratings, have issued cautionary signals. Last month, they downgraded Kenya's capacity to repay international lenders from "stable" to "negative," citing heightened taxes and civil unrest.

Kenyan legislators, in a June decision, voted to replace the fixed shilling-based debt ceiling with a proportion of the nation's gross domestic product (GDP). However, the Senate is still to endorse this amendment.

Ruto, who assumed office last year, championed an economic revival for the country's population of roughly 53 million. Nevertheless, economic growth decelerated to 4.8 percent in 2022 from the prior year's 7.6 percent, with a projected expansion of over five percent this year, according to the International Monetary Fund (IMF).

The President, outlining his strategy for a "bottom-up" economic transformation, pledged to trim government debt and implement policies channeling funds into the pockets of impoverished Kenyans. However, his initial action upon taking office last September was to terminate food and fuel subsidies introduced by his predecessor Uhuru Kenyatta. He defended this move by asserting a preference for supporting production over consumption.

Government's Resolve Under Scrutiny

In June, Ruto enacted fresh levies that elevated prices for essential commodities such as fuel, food, mobile money transfers, and introduced a contentious levy on all taxpayers to support a housing initiative.

However, in an abrupt reversal on Monday, his administration reinstated a partial fuel subsidy following multiple rounds of violent anti-government protests and public outrage over the soaring cost of living.

The energy regulator confirmed that the subsidy, aimed at "softening the impact of skyrocketing pump prices," will remain in place for a month.

African think tank Oxford Economics Africa remarked on Tuesday, "The anticipation of higher global oil prices and the potential for further depreciation of the shilling will assess the government's commitment to controlling fuel costs in the upcoming months." The think tank also pointed out that the subsidy contradicted the IMF's stance.

Kenya boasts one of East Africa's most vibrant economies, yet nearly a third of its populace lives in poverty.

Inflation in the nation has maintained a stubbornly high trajectory, registering an annual rate of 7.3 percent last month.

Ruto remains adamant that the heightened taxes are a requisite to stimulate job creation, replenish government coffers, and mitigate over-reliance on borrowing.

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