Kenya not likely to attain debt sustainability until after 2029 – Treasury
CBK data shows Kenya's public debt hit Sh10.027 trillion in the last week of June 2023, effectively breaching the then statutory debt ceiling which was set in June 2022 for the 2022/2023 financial year.
Kenya will have to deal with debt distress for much longer, probably beyond 2029, the National Treasury has said.
During the launch of the 2025 Medium Term Debt Strategy on Wednesday, the exchequer said the country, since 2023, has been in breach of the statutory debt levels, and the situation is expected to persist for at least the next four years with certainty.
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“The present value of total public debt to GDP ratio is projected to remain above the 55 per cent benchmark through 2029, after which it is projected to decline to within the approved threshold,” Treasury said.
Data by the Central Bank of Kenya (CBK) shows Kenya's public debt hit Sh10.027 trillion in the last week of June 2023, effectively breaching the then statutory debt ceiling which was set in June 2022 for the 2022/2023 financial year.
At the same time, Parliament approved the conversion of the Sh10 trillion debt ceiling with a debt anchor as a percentage of GDP, fulfilling some of the IMF conditions for the country.
The Public Debt and Privatisation Committee set the public debt threshold at 55 per cent of the GDP in present value terms.
The committee further provided a window not exceeding five per cent to accommodate the current public debt to the GDP threshold of 60 per cent.
With the levels still above the set threshold, currently at 58.1 per cent of the GDP, the exchequer says the country will not stop borrowing, signalling a departure from the government's previous commitment to align spending with revenue collection by 2027.
President William Ruto said last year he aims to run a balanced budget before the end of his first term in two years.
Speaking on Wednesday during the report launch, National Treasury Cabinet Secretary John Mbadi said Kenya will keep borrowing beyond 2027.
“The recent debt sustainability analysis indicates that Kenya's public debt is sustainable but with a higher risk of debt distress,” Mbadi said.
“It is key to note that the National Treasury has until November 1, 2029, to bring the present value of public debt within the threshold to comply with the law.”
He noted that with the strategy, the exchequer aims to reduce debt costs and risks by sourcing 25 per cent gross borrowing from external sources and 75 per cent from domestic sources over the medium term, now until 2028.
Addressing the disparity between domestic and external sourcing from the previous year’s update, which stipulated a 50/50 share, Mbadi said external sources are becoming limited at an alarming rate.
“We must be alive to the fact that external sources are shrinking badly with the policy pronouncements in major economies. We are no longer looking forward to much support from that direction, and therefore we have to look inward and without destabilising our domestic markets.”
From the domestic sources, Mbadi however noted that the strategy is to gradually reduce the stock of treasury bills while lengthening debt maturity and issuance of medium-term debt security.
On the external end, the target is to have a mix of concessional optimisation and minimal commercial borrowing, he added in part.
Nevertheless, he noted that the implementation of the strategy seeks to reduce the cost of public debt by reducing nominal debt to GDP to 57.8 per cent from the current 63.7 per cent and the present value of debt to GDP from 58.1 percent to 52.8 percent.
“The expected composition of public debt at the end of the strategy period will be 45 per cent external and 55 per cent domestic and the government will implement the medium-term debt strategy through the annual borrowing plan.”
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