Kenya failed to meet Sh84.6 billion debt repayment obligations in the year to June due to a cash crunch and instead carried over the payments to the current fiscal year.
The public debt rose to Sh8.6 trillion adding more burden on service costs, with more than Sh945 billion used to pay domestic and external lenders in the 2021/22 financial year.
In its latest review of the progress on implementing projects under its 38-month credit scheme, the International Monetary Fund (IMF) said Kenya failed to pay 0.7 per cent of the country’s GDP to external creditors.
The IMF did not make public the identity of the creditors.
“A constrained borrowing environment meant that planned external commercial financing did not materialise. Lack of funds contributed to 0.7 per cent of GDP in unpaid obligations that were carried over to the 2022/23 financial year,” IMF stated.
Kenya’s GDP was Sh12.0982 trillion by 2021, according to the Central Bank of Kenya.
The IMF said while Kenya grew its tax revenue and cut budget deficits, the country’s debt pressures remained high.
The lender added that a mix of factors, including huge amounts spent on subsidising fuel, high inflation and disruptions in global supply chains drained Kenya’s efforts on growing revenue and cutting the budget deficit.
“Significant unbudgeted spending in the early months of this fiscal year, much of it for fuel subsidies, posed an additional challenge. There has been progress on fiscal adjustment needed to address debt vulnerabilities though pressure remains elevated,” the lender said.
The government cut the budget deficit from 8.2 per cent of the GDP to 6.2 per cent, during the year, while Kenya Revenue Authority (KRA) grew taxes from 12.6 to 13.7 per cent of GDP, crossing the Sh2 trillion mark for the first time.
Announcing a planned release of Sh52.7 billion in lending to Kenya under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) in the coming weeks, the IMF said nearly half of the money would be prioritised to cover external financing needs due to the ongoing drought.
“Upon completion of the Executive Board review, Kenya will have access to SDR 336.54 million (equivalent to about $433 million), bringing the total IMF financial support under these arrangements to about $1,548 million,” a statement by IMF heads of the delegation to Kenya Mary Goodman and Tobias Rasmussen read.
“This latter amount includes proposed augmentation of access of SDR162.84 million to cover external financing needs resulting from drought and challenging global financing conditions.”
The IMF says the new government must continue with measures to grow revenue further while controlling spending in a bid to cut budget deficits.
“It will also be important to move ahead with structural and governance reforms. This includes completing efforts to publish beneficial ownership information for awarded government contracts, which will be a major step towards greater transparency and accountability,” the statement said.
“Reform of financially-troubled state-owned enterprises – including Kenya Airways and Kenya Power – will also be key.”
President William Ruto’s initial measures to do away with fuel subsidies and reinstate variable cost adjustments in electricity prices led to a rise in fuel and power prices.
Treasury in the quarter that ended June tapped Sh40.87 billion from the dollar reserves the CBK received from the IMF in form of special drawing rights in August last year.