Kenya’s debt level has skyrocketed to unprecedented heights, despite President William Ruto’s promises to rein in the country’s insatiable appetite for loans, according to recent treasury figures. The total public debt surged by an alarming 1.56 trillion shillings ($10.8 billion) in the financial year ending June 30, reaching a staggering 10.1 trillion shillings ($70.75 billion), breaching the established debt ceiling of 10 trillion shillings.
The Treasury revealed that the surge in public debt is primarily attributed to external loan disbursements, exchange rate fluctuations, and the uptake of both domestic and external debt. The cost of servicing the debt for the year ending June amounted to 391 billion shillings ($2.7 billion), with the highest payment of 107 billion shillings ($743 million) owed to China. The recent depreciation of the Kenyan currency, trading at record lows of around 144 shillings to the dollar, has further amplified the burden of loan repayments.
The unprecedented debt load has raised alarm bells among global credit ratings agencies. Last month, Fitch Ratings downgraded Kenya’s ability to repay international lenders from “stable to negative,” citing tax hikes and social unrest as contributing factors. This downgrade has raised concerns about Kenya’s financial stability and its ability to meet its debt obligations.
In an attempt to address this crisis, Kenyan lawmakers voted in June to change the debt ceiling from a fixed shilling amount to a proportion of the country’s gross domestic product (GDP). However, the amendment has not yet been passed by the Senate, leaving the nation in limbo as it grapples with its deteriorating economic situation.
President Ruto, who assumed office last year with a promise to revive the economy, now faces growing scrutiny over his ability to deliver on his economic agenda. Despite a modest economic growth rate of 4.8 percent in 2022, down from 7.6 percent the previous year, the International Monetary Fund (IMF) forecasts Kenya’s economy to expand by over five percent this year. Ruto had outlined a “bottom-up” economic transformation plan, which aimed to reduce government debt and introduce policies benefiting impoverished Kenyans.
However, Ruto’s first move upon assuming office in September last year was to cut food and fuel subsidies introduced by his predecessor, Uhuru Kenyatta. Ruto argued that subsidizing production, rather than consumption, was a more effective approach. In June, he further exacerbated the situation by introducing new taxes, resulting in higher prices for essential goods such as fuel, food, and mobile money transfers. He also introduced a contentious levy on all taxpayers to fund a housing scheme.
The public’s mounting frustration culminated in several rounds of deadly anti-government protests and widespread anger over the soaring cost of living. In response, Ruto’s administration made a U-turn on Monday and reinstated a fraction of the fuel subsidy, which will last for a month, according to the country’s energy regulator. This move aims to alleviate some of the pressure on consumers amidst rising pump prices.
However, experts warn that the reinstatement of the fuel subsidy may strain the government’s commitment to controlling fuel prices in the coming months, especially in the face of potential increases in international oil prices and the likelihood of further weakening of the Kenyan shilling. This decision also contradicts the wishes of the IMF, which has consistently advocated for austerity measures to address the country’s economic challenges.
Kenya, one of East Africa’s most vibrant economies, continues to grapple with high levels of poverty, with approximately one-third of the population living below the poverty line. Inflation remains stubbornly high, reaching an annual rate of 7.3 percent last month.
President Ruto insists that the tax hikes are necessary to generate employment, increase government revenue, and reduce reliance on borrowing. However, critics argue that these measures have only exacerbated the economic hardships faced by ordinary Kenyans.
As Kenya’s debt crisis deepens, the country finds itself at a critical juncture, requiring effective and decisive actions to address its mounting debt burden, stimulate economic growth, and alleviate the hardships faced by its citizens. The government’s ability to implement sustainable economic policies and restore confidence in its financial management will be crucial in charting a path towards a more stable and prosperous future for Kenya.
