This archive report was first published on 9 May 2021.
Kenya's debt crisis has reached a critical point, with the government's latest budget documents revealing a fiscal deficit of Sh952 billion, exceeding the approved limit of Sh930 billion set by Parliament.
According to the Treasury's latest figures, the fiscal deficit - the gap in spending that the government will have to fill by borrowing - stands at Sh952 billion, Sh15 billion higher than the figure presented in the Budget Policy Statement (BPS) earlier this year.
Parliament had threatened to stall the passing of the State's spending plan if the fiscal deficit for the 2021/2022 financial year went beyond Sh930 billion. However, the Treasury's latest figures indicate that the government plans to borrow Sh952 billion, reversing the foreign to domestic debt ratio and contradicting Parliament's recommendations.
As a result, Kenya's debt position is becoming increasingly precarious. The government plans to borrow Sh291.3 billion from the external market and an additional Sh661 billion from the domestic market, raising concerns about the country's ability to repay its debts.
According to Kwame Owino, head of the Institute of Economic Affairs, Kenya's debt risk could be much higher since the IMF document was prepared before Kenya went into the third phase of the Covid-19 pandemic.
“If you look at the public discourse, everybody seems to think that the solution to Kenya's debt distress problem is to stop borrowing,” explains Kwame. “Unfortunately, that is not possible because if the government stops borrowing today, government operations will come to a crash.”
