This archive report was first published on 5 July 2019.
Kenya's Debt Levels Raise Concerns ¶
On July 5, 2019, the World Bank Vice-President for Africa, Hafez Ghanem, expressed concerns over Kenya's high debt levels and expensive commercial loans in an exclusive interview with the Business Daily.
According to Ghanem, Kenya's debt level has not yet reached a tipping point, but raises concerns over low-yielding investments that do not generate enough tax revenue to repay the loans.
"I worry about increased indebtedness in Africa," Dr Ghanem said. "If a country wants to avoid a debt crisis, you need to make sure that the cost of borrowing is lower than the return on investment."
"The question is not how much debt you have, but what uses have you put this money to and what rates of return are you getting," said Dr Ghanem, an economist. Kenya's public debt has risen rapidly in the past six years to the current total of more than Sh5.4 trillion, equivalent to nearly 60 percent of the gross domestic product (GDP). The country owed the World Bank about Sh548.5 billion as at January, while Chinese loans totalled Sh620.6 billion in the same month. Kenya has in recent times borrowed expensive commercial loans such as the Sh25 billion ($250 million) syndicated loans signed in January with the Eastern and Southern African Trade Development Bank at a cost of the six-month London Inter-Bank Offered Rate (Libor) plus a margin of seven percent. The six-month Libor was about 2.8 percent at the time, indicating total repayment cost of nearly 10 percent. The World Bank boss also challenged African countries to review their investment strategies to align loan-funded projects with the cost of borrowing. Kenya, he says, needs to find a funding balance to repay the loans and finance development projects without resulting to cutting critical expenditure on education, health, social protections and security.
