Kenya ‘will no longer comply’ with signed EAC agreement on debt limit

Kenya’s National Treasury in Nairobi. There has been a rise in government borrowing since President Uhuru Kenyatta came to power in 2013— a jump that some politicians and economists say is saddling future generations with too much debt. FILE PHOTO | NMG Kenya’s higher level of debt have raised fiscal vulnerabilities and increased interest payments on public debt to nearly 20 per cent of collected revenues.

According to Treasury, public debt service-to-revenue ratio increased from 16.5 per cent in 2012, to 35.8 per cent in 2017, 30.5 per cent in 2018 and is expected to increase to 33.4 per cent in 2019. The IMF threshold is 30 per cent.

Kenya’s debt has changed from being productive to unproductive thereby creating a net burden on the country in increased taxation.

Kenya has breached the East Africa Community ceiling on debt accumulation, as the national Treasury borrows heavily to finance government operations amid falling revenue collection and poor economic performance.

A unanimous vote by the country’s lawmakers, about two weeks ago, to increase the debt ceiling to Ksh9 trillion ($90 billion) in the current 2019/2020 fiscal year has compromised the government’s bid to comply with the region’s debt target that is equivalent to 50 per cent of the GDP and weakened the country’s debt sustainability indicators.

The Parliamentary Budget Office (PBO) said Kenya’s growing debt-to-GDP ratio, which currently stands at 61.8 per cent, has put the country in a difficult position to comply with the regional agreement on the attainment of a single currency regime.

“The country will no longer comply with the EAC convergence criteria, which it is a signatory to,” the PBO said in its submissions to the Parliamentary Committee on Delegated Legislation in Nairobi.

According to the PBO, the raised ceiling will also increase debt repayment and undermine the credibility of the national budget that had proposed to reduce the debt-to-GDP ratio to 50.6 per cent in the 2019/2020 fiscal year.

Kenya’s higher level of debt, together with rising reliance on non-concessional borrowing, have raised fiscal vulnerabilities and increased interest payments on public debt to nearly 20 per cent of collected revenues.

“Currently, the country has surpassed some of the debt sustainability thresholds. Particularly more distressing is the debt service-to-revenue ratio. This implies that the economy is not generating enough revenue to cover the debt servicing requirements,” said PBO.

“The risk is that the country will continue to borrow to repay the existing debts and […]

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