Institute of Economic Affairs says Kenya’s debt made worse by Covid-19 pandemic

Friday, January 7th, 2022 02:00 | By
NMS Health workers administer Covid-19 jabs to members of the public at Nairobi Bus Station recently. PD/FILE

Public debt rose to a near all-time high globally with Kenya’s rising 23 per cent in 2021 as concerns abound this could trigger interest rate hikes or a global recession in 2022, International Monetary Fund (IMF) data shows.

According to the IMF data, public debt across the world increased by an average of 19 per cent, but some countries accumulated debt much faster.

In Kenya, public debt jumped from Sh6.5 trillion in 2020 to Sh8 trillion as of September 2021, while borrowing gathered pace, with Kenya further calling for debt relief from Bretton Woods and China.

“Public debt now accounts for almost 40 per cent of total global debt, the highest share since the mid-1960s,” says IMF.

Rising inflation

Due to rising inflation especially in developed countries, it is feared this could trigger interest rate hikes, that could lead to investors dumping emerging market assets, thus hurting local currencies.

Foreign investors control nearly 70 per cent of the turnover at the Nairobi Securities Exchange (NSE) in Kenya.

Rising prices of commodities such as oil and consumer goods including cooking oil, wheat and maize have pushed inflation to almost 7 per cent in what could trigger interest rate rise locally hurting new investments and pushing the proportion of bad loans higher.

This even as National Treasury Cabinet Secretary Ukur Yatani downplayed the debt issue last year, saying that Kenya’s debt is okay at about 60 per cent of GDP, but recent data shows that public debt is well over 70 per cent of GDP.

“I am not worried about the size of debt, we have borrowed for development, if we continue cutting expenditure, then we shall have a crisis, there will be no liquidity,” says CS Yattani.

The CS said they are now keen on borrowing only from multilateral lenders and not in the domestic market.

Yatani said that Kenya’s GDP is far below that of Japan whose public debt is well over 100 percent of GDP. 

However Japan has much more cashflow than Kenya and due to its debt the East Asian nation is growing at below 1 percent per year.

Analysts also recon that in 2022, apart from the public debt challenge, Kenya will come with a number of challenges including elections, Omicron.

“The other factor aside from the political risks is the rising cost of food and energy both locally and internationally,” said Reuben Wambui of UNEP Financial Initiatives.

More on Business