IMF Warns Kenya Of Debt Crisis For Over-Borrowing
According to the International Monetary Fund, Kenya must exercise caution when it comes to fresh borrowing in order to avoid future debt difficulties.
In a Q&A session with citizens from several countries on Thursday, IMF Director of the Communications Department Julie Kozack said Kenya is currently at high risk of a debt crisis and any borrowing should be carefully considered.
Kozack’s remark came in response to a question concerning the Fund’s reservations about the Kenyan government’s plan to borrow around $1.5 billion from the UAE.
She remained hesitant about disclosing details of conversations between Kenya and the UAE concerning the loan facility.
From today’s press briefing: I answered questions on Argentina, Egypt, Kenya, St. Kitts and Nevis, and more.https://t.co/9S1huZ7CMe
— Julie Kozack, IMF (@IMFSpokesperson) November 21, 2024
However, she indicated that Kenya’s expenditure demands in relation to its expanding weight of public debt were a delicate balancing act.
“What I can say is that we assess Kenya to have a high risk of debt distress; any new borrowing should be considered within the context of a comprehensive fiscal strategy to reduce debt vulnerabilities while also addressing the recent and emerging fiscal challenges,” she said.
Kozack stated that she does not have any additional information on the scope of the loan facility negotiations, but that such information will be made public as soon as it becomes available.
Kenya’s need to take more loans, despite the mounting load of public debt, became a reality after Kenyans overwhelmingly rejected the government’s intentions to extend the income base through the Finance Bill of 2024.
A series of street protests in mid-June and early July organized by the country’s young Generation Z caused President Wiliam Ruto to withdraw the contentious Bill, resulting in the loss of an estimated Sh340 billion.
Plans to adopt additional tax measures through a multiplicity of tax law revisions have already begun generating public outcry, leaving Ruto with one desirable choice – borrow.
This is despite the country’s national debt being around Sh10.6 trillion as of July 2024.
Kenya’s domestic debt stock stood at Sh5.41 trillion as of June 30, 2024, with a total debt service obligation of Sh1.85 trillion for the fiscal year 2024/25.
This includes Sh843.4 billion for debt repayment and Sh1.1 trillion in interest payments.
Kenya’s debt metrics are likely to improve, but the government remains vulnerable to economic shocks that will be exacerbated by increased borrowing.
However, even as Kenya considers additional borrowing, the IMF has imposed a number of requirements, including increased tax collections, reduced subsidies, and reduced government waste.
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The lender has also advised Kenya to strengthen governance and transparency, reform state-owned firms, and borrow for fiscal consolidation, which entails increasing revenue while limiting expenditure.
“The policymakers in Kenya like in much of the region, do face a complex balancing act between pressing spending needs for priority areas, including social programs, health and education, managing the rising burden of public debt and boosting domestic revenues,” Kozack said.
She indicated that the IMF was in conversation with Kenya about these issues and that the Deputy Managing Director, Nigel Clarke, would travel to Nairobi on December 9 and 10 as part of the ongoing discussions.
“During his visit, DMD Clarke will meet with the authorities and other key stakeholders, and we’ll provide more updates on this trip as they become available,” she said.
IMF Warns Kenya Of Debt Crisis For Over-Borrowing
