The National Treasury building in Nairobi. FILE PHOTO | NMG Kenya will need almost a decade to tame runaway debt as the country is expected to borrow Sh9 trillion by 2024.
Rating agency Fitch says the general government debt-to-GDP ratio will continue increasing through 2022 to 64.8 per cent before easing gradually to 60.5 per cent by 2028.
“Our projections are less optimistic than that (those) of the government, which sees debt stabilising in 2020 and falling to 54 per cent by 2024. General government debt reached 61.3 per cent of GDP at end-2019,” Fitch said in a rating update on December 10.
In November 2019, the Parliament approved a change to the existing debt limit, moving it to a nominal limit of Sh9 trillion from 50 per cent of GDP in net present value terms.
The rating firm warned that Kenya spent twice as much as its peers in paying for loans with the government’s interest costs at 22.1 per cent.
Fitch Ratings affirmed Kenya’s Long-Term Foreign-Currency Issuer Default Rating at ‘B+’ with a Stable Outlook though.
The rating agency said the outlook was supported by the ability of the Kenyan economy to grow in a stable rate of between 4.6 per cent to 6.3 per cent while maintaining stable single-digit inflation.
The economy although robust is expected to take a hit from political risks in 2022 in line with previous trends, the agency warns.
Fitch cited weakness in Kenya’s ratings as a shrinking tax even as the economy keeps growing due to the structure of agriculture-led growth by smallholder farmers outside the tax net.
“General government revenue has fallen to an estimated 17.5 per cent in the fiscal year ending June 2019 from a recent high of 19 per cent of GDP in 2015,” Fitch said.
Fall in revenue has also been attributed to weak tax compliance and expansion of exemptions.“The most recent budget and the Finance Bill 2019 include an increase in capital gains tax, new excise taxes, and a widening of the withholding tax. These revenue measures will help to increase revenue, but to less than the 20 per cent of GDP targeted in the 2020 budget,” Fitch said.