This archive report was first published on 11 June 2020.
Kenya's public debt has become a pressing concern, with the country's high debt levels threatening to outpace development expenditure in the 2020/21 budget. According to budget estimates, the cost of debt financing is expected to exceed development expenditure, a stark irony given that public debt is meant to fund development projects.
Debt servicing expenses, which include interest payments, are estimated to account for 51% of the total debt service payments, amounting to Ksh461.39 billion. In contrast, development expenditure, including foreign-financed projects and conditional transfers to county governments, is estimated at Ksh584.9 billion.
Public debt servicing expenses constitute the largest portion of the Consolidated Fund Service (CFS) expenses, which primarily relate to public debt, pensions, and salaries of constitutional offices. CFS expenditures are estimated to hit Ksh1.04 trillion in FY2020/21, consuming approximately 55% of the projected revenues in the upcoming financial year.
Kenya's medium-term debt management strategy remains in jeopardy due to rising expenditure demands, prolonged impacts of COVID-19 on the real economy, and reducing revenue mobilization. The country is at risk of breaching all threshold ratios: debt service to revenue and debt service to export ratios – if there is no policy intervention in the upcoming year.
The Budget Appropriation Committee (BAC) has urged the Treasury to renegotiate the terms and conditions of existing loans, including seeking a grace period for interest and principal payments.
