This archive report was first published on 5 July 2019.
The World Bank has sounded the alarm over Kenya's rising debt burden, warning that the country's increasing reliance on expensive commercial loans poses a significant risk to its economic stability.
According to World Bank Vice-President for Africa Hafez Ghanem, Kenya's debt level has not yet reached a tipping point, but the country's low-yielding investments and high debt servicing costs raise concerns over its ability to repay the loans.
"I worry about increased indebtedness in Africa," Dr Ghanem said in an interview with the Business Daily. "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."
Kenya's public debt has risen rapidly in the past six years, reaching over Ksh5.4 trillion ($52.7 billion) or nearly 60 per cent of the country's GDP. The country owes the World Bank about Ksh548.5 billion ($5 billion) and Chinese loans totalled Ksh620.6 billion ($6 billion) in January.
Dr Ghanem warned that Kenya needs to find a balance between repaying its debts and financing development projects without cutting critical expenditure on education, health, social protections, and security.
"Kenya's revenue to GDP is around 15 percent, which is better than many countries but is way too low to meet the development objectives of the country," he said. "We in Africa need to look at this issue carefully and we need to make sure that we have debt strategies that are careful."
Kenya has recently borrowed expensive commercial loans, including a Ksh25 billion ($250 million) syndicated loan signed in January at a cost of 9.8 per cent and a Ksh125 billion ($1.25 billion) loan signed in February at a cost of 9.95 per cent.
The World Bank boss also challenged African countries to review their investment strategies to align loan-funded projects with the cost of borrowing.
