MOODY’S RAISES RED FLAG OVER KENYA’S EXPANDING DEBT

NAIROBI, Kenya’s debt is fast rising towards the red zone and may reach 60 per cent of the country’s wealth by June next year, warns international rating agency Moody’s, which says the country’s fiscal space will come under renewed pressure as it starts paying interest on the Eurobond issue and the syndicated loans borrowed five years ago.

Kenya’s debt stood at 4.0 trillion shillings (about 38.7 billion US dollars), or 56 per cent of gross domestic product (GDP) as of June this year. It has been on a rising trend, increasing at an average annual rate of 20 per cent.

The country has been on a borrowing spree to fund multi-billion dollar infrastructural projects like the Standard Gauge Railway, expansion of the Port of Mombasa, new energy plants and the upgrading of various highways.

Although various bodies have raised the red flag over the expanding debt, the National Treasury has set a threshold of 70.4 per cent of GDP which it does not plan to breach.

Treasury says there is an increase in government support in the funding of heavy capital projects through the Public-Private Partnership (PPP) arrangement which will help in reducing the rate of debt accumulation.

Moody’s says Kenya’s government debt burden, which stood at 56.4 per cent of GDP in June from 40.5 per cent five years ago, will continue to rise because of persistently high primary deficits and borrowing costs.

The agency says unless the government implements strict fiscal discipline, the economy will come under severe pressure from interest and debt repayments.

A statement from Moody’s says pressures on the government primary balance, which posted a deficit of 5.3 per cent of GDP in the latest fiscal year ended June 2017, came from elevated development spending and weak revenue performance, warning that unless a decisive policy response is introduced, the upward trajectory in government debt will see debt-to-GDP surpass the 60 per cent mark by June 2018.

Treasury has budgeted more than 200 billion shillings to pay off various debts maturing in the current fiscal year.

Source: NAM NEWS NETWORK