The World Bank has warned Kenya against piling up more debt than the country can repay, even as Parliament this week approved to raise borrowing ceiling to Ksh9 trillion ($85.7 billion).
A World Bank report released on Wednesday warns that Kenya is drifting towards debt distress, owing to the government’s huge appetite for expensive loans.
The Kenyan Parliament, on the same day when the WB report was released, approved the National Treasury’s push to raise the borrowing cap from about 50 per cent of GDP to an absolute figure of Ksh9 trillion.
The possibility of Kenya sliding into distress is classified as ‘moderate’ having risen from ‘low’ in recent years, driven by the government’s rapid uptake of loans that saw the total public debt hit Ksh5.7 trillion ($54.3 billion) by June this year.
Public debt stands at 62 per cent of gross domestic product and could hit 70 per cent of GDP in the near future if the government continues to borrow at the current rate, ultimately meaning that Kenya would have crossed the threshold to debt distress.
“It is important that future debt management adopt measures to ensure debt is not accelerating. One of the measures is to ensure that in the planned fiscal consolidation the government must stick to a path that seeks to reduce debt from 62 per cent of GDP towards 55 per cent in the medium term,” said Peter Chacha, World Bank senior economist.
Mr Chacha was speaking in Nairobi after the World Bank released the Africa’s Pulse Biannual Report for October.
He added that Kenya must find ways to resuscitate the private sector to grow revenue collection instead of over-relying on the agricultural sector and public investments in infrastructure to drive economic growth.
A week after MPs raised the country’s debt ceiling to Sh9 trillion, a Treasury debt plan shows that negotiations are under way to borrow up to Sh421.3 billion to fund various projects.
Majority of the funds will be borrowed from the African Development Bank (Sh94 billion) and China (Sh86 billion), according to the plan.
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