Kenyan lawmakers are pushing for a change in legislation to accommodate a Ksh4 trillion ($35.39 billion) new debt to fund a rising budget deficit amid warnings that the country is headed into debt distress.
Kenya’s National Treasury is considering options of financing a Ksh846 billion($7.48 billion) deficit in its Sh3.2 trillion ($28.31 billion) spending plan for 2022/2023.
The MPs are now pushing for a law change to increase the state’s borrowing limit to Sh13 trillion ($115.04 billion) from Ksh9 trillion ($79.64 billion), the second increment in less than three years even as public debt hit Ksh8.02 trillion ($70.97 billion) in December 2021.
Two political formations in Parliament -- Azimio la Umoja led by President Uhuru Kenyatta and ODM leader Raila Odinga and Kenya Kwanza Alliance led by the disgruntled Deputy President William Ruto -- have been battling over the proposal.
The Azimio MPs this week successfully pushed an amendment to the 2022/23 Budget Policy Statement directing the Treasury to amend the Public Finance Management law to help plug the budget deficit.
They also overturned a Budget and Appropriations Committee report that had imposed a Ksh400 billion ($3.53 billion) cap on debt to avoid breaching the Sh9 trillion ($79.64 billion) ceiling.
In 2019, Kenya breached the East Africa Community debt ceiling after its MPs voted to increase the limit to Ksh9 trillion ($79.64 billion) , compromising the government’s bid to comply with the region’s debt target of 50 percent of GDP and weakening the country’s debt sustainability indicators.
Kenya’s non-concessional loans have raised fiscal vulnerabilities and interest payments to nearly 20 percent of revenues.
The Parliamentary Budget Office (PBO) says the country has surpassed debt sustainability thresholds, particularly the debt service-to-revenue ratio, implying that the economy is not generating enough revenues to cover its debt payments.
“The risk is that the country will continue to borrow to repay the existing debts and not for development expenditure as contemplated in law,” said PBO.
In 2021, the International Monetary Fund rated Kenya’s risk of external debt distress and overall risk of debt distress as ‘high’. Kenya’s public debt as a proportion of GDP was 66.2 percent, up from 48.6 percent in 2015.
Over the past decade, growth in interest payments has outpaced growth in exports. But the National Treasury blames Covid-19 for the risk of debt distress.
“The debt sustainability ratios worsened following the adverse effects of Covid-19 pandemic on the economy,” it said.
Kenya’s stock of public and publicly guaranteed debt stood at as at Ksh8.02 trillion($70.97 billion) in December 2021. This comprised Ksh4.03 trillion ($35.66 billion) domestic debt and Ksh4.17 trillion ($36.9 billion) in external debt stock.
In Tanzania, there has been a rising chorus against a debt binge by the Samia administration, a debate that earlier this year saw former Speaker of National Assembly Job Ndugai pushed out for his criticism of President Samia Suluhu’s "excessive" borrowing.
Also read: Tanzania risks debt distress: World Bank
Tanzania’s stock of national debt amounted to $37.57 billion by end of January this year, an increase of $133.2 million from December 2021 and $6.27 billion from the amount recorded in January 2021. External debt accounted for 75.4 percent ($28.17 billion) of the national debt stock . Of the external debt 33 percent ($9.29 billion) is commercial loans.
Uganda ‘bad’ loan
Tanzania’s debt service payment amounted to $17.6 million, of which $9.7 million was principal repayment.
In Uganda, a top Chinese lender has imposed "aggressive" repayment terms on a $200 million loan to expand Uganda's Entebbe international airport.
Under the loan from China's Exim Bank to modernise the Entebbe Airport, the Ugandan government is required to channel all revenue from the country's only international airport into an account held jointly with the lender. The government is then required to use part of the revenue to repay the loan each year before it can invest in public services.
State-owned China Communications Construction Company began repairing runways and building new hangars in 2016 and the work is expected to be completed this year.
Provisional data from the Bank of Uganda shows that total public debt stock as at October 2021 stood at Ush 73.78 trillion ($20.72 billion) while external debt exposure amounted to $12.78 billion in the period.
- Additional reporting by Beatrice Materu