Kenya’s rising debt and doubts over repayment

Saturday April 27 2019

President Uhuru Kenyatta (left) with Deputy President William Ruto and National Treasury Cabinet Secretary Henry Rotich in 2014 announcing the success of Eurobond 1. PHOTO | EVANS HABIL | NMG


Kenya’s borrowing spree has increased the accumulation of new debts with signs that the country’s capacity to repay the loans could be impaired by falling revenue collections.

The total national debt exceeds over Ksh5 trillion ($50 billion) and the country has already breached key debt service to revenue ratios, with economists raising concerns on the increased proportion of commercial loans with high interest rates.

Data released by economists at the Kenya’s Institute of Economic Affairs this past week shows that in 2017, 2018 and 2019, Kenya’s debt service to revenue ratio stood at 35.8 per cent, 30.5 per cent and 33.4 per cent respectively against the threshold of 30 per cent.

Interest payment on loans is expected to increase by 31 per cent to Ksh400 billion ($4 billion) in 2018/19 from Ksh305 billion ($3.05 billion) in the revised budget of 2017/18.

According to the economists, the composition of the government’s external debt shows an increasing shift towards expensive loans from commercial banks and the Eurobond.

By September 2018, Kenya’s public debt stood at Ksh5.15 trillion ($51.5 billion) comprising a domestic debt of Ksh2.54 trillion ($25.4 billion) and an external debt of Ksh2.61 trillion ($26.1 billion).


An estimated 70.6 per cent of the external debt comprises loans from China.

“There is a high rate of accumulation of new debt and the debt service to revenue ratio threshold has been breached implying that any shocks in revenue collection could affect the country’s ability to repay the debt,” says the IEA report: Trends in Kenya’s Public Debt.

Budgetary needs

The drivers of public debt include increased borrowing appetite to meet budgetary needs, while the government’s expenditure has persistently been on an upward trend over the past decade from 22.3 per cent of the gross domestic product in 2008/09 to 27 per cent of GDP in 2017/18.

In the 2018/2019 fiscal year, Kenya’s external loans were channelled into the energy, infrastructure, and ICT sectors (60 per cent), environment protection, water and natural resources (13 per cent), health (6 per cent) while national security and education each received a paltry four per cent of the funds.

In 2017, Kenya’s debt to GDP stood at 56.2 per cent compared to Tanzania (37.4 per cent), Uganda (38.6 per cent), and Rwanda (40.2 per cent).

Kenya is in the process of issuing a third Eurobond bond valued at $2.5 billion to pay off other maturing debt obligations, including a $750 million Eurobond priced at 5.875 per cent that is due for payment in June.

The country in February last year issued a $2 billion Eurobond in two equal tranches of 10 years at a coupon rate of 7.25 per cent and 30 years at a coupon rate of 8.25 per cent.

In 2014, Kenya issued a $2.75 billion sovereign bond, with a $750 million five-year segment paying interest of 5.875 per cent and a $2 billion 10-year bond with a yield of 6.875 per cent.

However, the average yield on dollar bonds of African countries is estimated to have risen by more than 160 basis points in January 2019 since issuance in March 2018.

Cote d’Ivoire had planned to sell at least $2 billion in Eurobonds this year but Prime Minister Amadou Gon Coulibaly said conditions on the international financial markets were not favourable.

It is argued that investors have more recently demanded higher rates on African sovereign bonds, while the ongoing trade war between China and the US, the world’s largest economies, has led to a drop in appetite for risk assets.

China’s slowdown and trade dispute with the US, coupled with continued uncertainty over Britain’s exit from the European Union are dragging back the global economy.