Despite President William Ruto’s pledge to curb the nation’s loan dependency, Kenya’s debt has surged to unprecedented levels, as revealed by treasury data.
The total public debt in Kenya surged by an unprecedented 1.56 trillion shillings ($10.8 billion) during the fiscal year ending on June 30, reaching 10.1 trillion shillings ($70.75 billion), surpassing the debt ceiling of 10 trillion shillings.
“The increase in the public debt is attributed to external loan disbursements, exchange rate fluctuations and the uptake of domestic and external debt,” the treasury said.
The expenses for loan repayments, primarily to China, have surged due to the local currency trading at historic lows of approximately 144 shillings to the dollar.
In the fiscal year ending in June, the expenditure on servicing debt amounted to 391 billion shillings ($2.7 billion), with the largest payment of 107 billion shillings ($743 million) directed towards China.
The burden of debt has triggered alerts from international credit ratings agencies, including Fitch Ratings, which recently revised Kenya’s ability to repay overseas creditors from “stable” to “negative.”
In June, Kenyan legislators voted to alter the debt ceiling from a set shilling value to a percentage of the nation’s gross domestic product (GDP).
Ruto assumed office last year with a pledge to rejuvenate the economy of the nation with a population of approximately 53 million.
Economic growth decelerated to 4.8 percent in 2022 from 7.6 percent in the prior year, and the International Monetary Fund (IMF) projects it to surpass five percent this year.
Detailing his strategy for a “bottom-up” economic overhaul, Ruto pledged to reduce government debt and implement policies aimed at increasing the income of underprivileged Kenyans.
However, his initial action upon assuming office in September of last year was to eliminate food and fuel subsidies that were put in place by his predecessor, Uhuru Kenyatta. Ruto argued that he favored subsidizing production over consumption.
Test Of Government’s Resolve
In June, Ruto implemented fresh taxes that led to higher costs for essential commodities like fuel and food, along with mobile money transfers. Additionally, he introduced a contentious levy on all taxpayers to finance a housing initiative.
However, in a reversal of its position on Monday, his government reintroduced a partial fuel subsidy in response to multiple rounds of lethal anti-government protests and public outcry over the steep cost of living.
The subsidy, aimed at providing relief to consumers facing soaring pump prices, will be in effect for one month, as stated by the nation’s energy regulator.
“Expectations of higher international oil prices and the possibility of further shilling weakness will test the government’s commitment to contain fuel prices in the coming months,” think tank Oxford Economics Africa said Tuesday, adding that the subsidy was against the wishes of the IMF.
While Kenya stands as one of the most vibrant economies in East Africa, approximately a third of its population resides in poverty.
In Kenya, inflation has persisted at a stubbornly high level, registering an annual rate of 7.3 percent last month.
Ruto has maintained that the tax increases are necessary to generate employment, bolster government revenue, and reduce the heavy reliance on borrowing.