Kenyan lawmakers are pushing for a law change to take on a new Ksh 4 trillion ($35.39 billion) indebtedness to fund a soaring budget deficit amid warnings the country is heading into a debt crisis.
The Kenyan Treasury is considering options to fund a deficit of 846 billion shillings ($7.48 billion) in its 2022/2023 spending plan of 3.2 trillion shillings ($28.31 billion).
MPs are now pushing for a law change to increase the state’s credit limit from Ksh9 trillion (US$79.64 billion) to Shilling 13 trillion (US$115.04 billion), the second increase in less than three years , although the national debt reached Ksh8.02 trillion (US$70.97 billion) in December 2021.
Two political factions in parliament – Azimio la Umoja led by President Uhuru Kenyatta and ODM leader Raila Odinga and the Kenya Kwanza Alliance led by disgruntled Vice President William Ruto – have fallen out over the proposal.
Azimio MPs this week successfully pushed an amendment to the 2022-23 fiscal policy statement directing the Treasury Department to amend the Public Finance Management Act to plug the budget deficit.
They also overturned a report by the Budget and Appropriations Committee that had imposed a debt ceiling of Ksh 400 billion (US$3.53 billion) to avoid exceeding the Sh9 trillion (US$79.64 billion) ceiling avoid.
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In 2019, Kenya surpassed the East African Community’s debt ceiling after its MPs voted to raise the limit to Ksh9 trillion ($79.64 billion), jeopardizing the government’s quest to reduce the region’s debt target of 50 percent of GDP and weakened the country’s debt sustainability indicators.
Kenya’s non-concessional lending has increased fiscal vulnerabilities and interest payments to nearly 20 percent of revenue.
The Parliamentary Budget Office (PBO) says the country has exceeded debt sustainability thresholds, specifically the debt service-to-revenue ratio, suggesting the economy is not generating enough revenue to cover its debt payments.
“The risk is that the country will continue to borrow to repay the existing debt and not for development spending as required by law,” PBO said.
In 2021, the International Monetary Fund ranked Kenya’s risk of an external debt crisis and overall risk of a debt crisis as “high”. Kenya’s public debt to GDP ratio was 66.2 percent, up from 48.6 percent in 2015.
Over the past decade, growth in interest payments has outpaced growth in exports. But the National Treasury blames Covid-19 for the risk of a debt crisis.
“Debt sustainability ratios deteriorated following the negative impact of the Covid-19 pandemic on the economy,” it said.
Kenya’s stock of public and state-guaranteed debt stood at Ksh8.02 trillion (US$70.97 billion) as of December 2021. This included Ksh 4.03 trillion (US$35.66 billion) in domestic debt and Ksh 4.17 trillion (US$36.9 billion) in external debt.
In Tanzania, there has been a loud chorus against a Samia government debt spree, a debate that saw former National Assembly Speaker Job Ndugai ejected earlier this year for his criticism of President Samia Suluhu’s “excessive” borrowing.
Read: Samia hints at cabinet reshuffle, scolds critics
Also read: Tanzania risks debt crisis: World Bank
Tanzania’s national debt was US$37.57 billion at the end of January this year, an increase of US$133.2 million from December 2021 and US$6.27 billion from the amount recorded in January 2021. External debt accounted for 75.4 percent (US$28.17 billion) of the national debt. Of the foreign debt, 33 percent ($9.29 billion) is commercial loans.
Uganda “bad” loan
Tanzania’s debt service payment was US$17.6 million, of which US$9.7 million was for capital repayment.
In Uganda, a leading Chinese lender has imposed “aggressive” repayment terms on a $200 million loan to expand Uganda’s Entebbe International Airport.
Read: China puts ‘aggressive’ terms on Entebbe airport loan: researchers
As part of China’s Exim Bank loan to upgrade Entebbe Airport, the Ugandan government is required to funnel all revenue from the country’s only international airport into a joint account with the lender. The government must then use part of the proceeds to repay the loan each year before it can invest in public services.
The state-owned China Communications Construction Company began repairing runways and building new hangars in 2016, and work is expected to be completed later this year.
Preliminary data from the Bank of Uganda shows that the total government debt amounted to US$73.78 trillion (US$20.72 billion) in October 2021, while the external debt amounted to US$12.78 billion during that period -dollars amounted.