An explosion in public borrowing has seen the debt burden on each Kenyan grow 73 per cent over five years, from Sh34,116 to Sh58,859, a Nation Newsplex review of economic data reveals.
Kenya’s debt per capita is almost as much as the Sh50,354 average monthly wage in 2015 and 10 times as much as the minimum monthly wage of Sh5,437 for unskilled workers.
Kenya’s public debt in 2015 nearly doubled to Sh2.6 trillion from Sh1.35 trillion debt in 2011, according to data from the Economic Survey 2016.
If Kenya had a one-year deadline to pay the debt it owed by the end of 2015, every Kenyan would have paid Sh4,905 a month for a year.
Critics argue that the if the debt is not controlled it will in the long run expose the economy to systemic risks.
In the first seven month of 2016 Kenya borrowed Sh171 billion, an increase of 46 per cent compared to the same period the previous year, according to data from the Public Debt Management Office. That amount translated to Sh800 million a day.
More than a half (55 per cent) of the public debt in 2015, equivalent to Sh1.4 trillion was borrowed externally while 1.2 trillion (45 per cent) was borrowed internally.
Economists say that although the share of internal borrowing decreased slightly the high internal rates of borrowing could crowd out the private sector and drive up the lending rates.
EXTERNAL DEBT SERVICE
The analysis, done jointly with the Institute of Economic Affairs (IEA) shows that both external and internal debt service charges have been increasing over time, with the exception of the fiscal year 2011/2012 when there was a slight dip. Annual Debt service refers to the total amount required each year to make payments on the principal and interest on long-term loans, bond interest and the principals of maturing bonds.
In the 2014/2015 financial year, external debt service charges almost quadrupled to Sh113 million up from Sh31.8 million in the fiscal year 2010/2011.
Internal debt service charges on the other hand have increased 81 per cent to Sh288 million in the 2014/2015 fiscal year from Sh159 million in 2010/2011.
Overall, annual debt servicing charges have more than doubled from Sh190 million in 2010/11 to Sh400 million in 2014.2015.
According to a 2016 report by the Parliament Budget Office the higher debt servicing payments will affect other critical public expenditures in the national Budget.
The Newsplex and IEA analysis also reveals that the debt is growing faster than the economy. The debt-to-GDP ratio rose from 37 per cent of GDP in 2011/2012 to 42 per cent of GDP in 2014/2015.
A high debt-to-GDP ratio may make it more difficult for a country to pay debts and could lead creditors to seek higher interest rates when lending.
In the Budget Review Outlook Paper of 2015 the debt-to-GDP ratio was projected to reach 63 per cent in the fiscal year 2018/2019. A study by the World Bank found that if the debt-to-GDP ratio exceeds 64 per cent in emerging markets, it slows economic growth by two per cent each year.
In 2011, the total annual debt servicing charges was 5.1 per cent of GDP, while in 2015 it was 6.4 per cent.
DEBT FROM CHINA
Experts say a higher debt-to-GDP ratio is acceptable when an economy is growing fast, because its future earnings will be able to pay off the debt more quickly, and when a country has a viable plan to address the high ratio.
The major external financiers to Kenya were China who lent Kenya Sh252 billion, followed by Japan (Sh79 billion), France (Sh59 billion) and Germany (Sh23 billion).
Bilateral external debt from all the traditional lenders declined in 2015 with the exception of debt from China, which grew significantly from Sh81 billion in 2014 to Sh252 billion in 2015.
Loans from China were mainly for financing construction of the first phase of the Standard Gauge Railway among other infrastructure projects.
International multilateral creditors account for nearly half of external credit to Kenya. The total debt borrowed from International organisations decreased from 74 per cent of the total external debt in 2010/2011 to about 68 per cent of the total external debt in 2015.
One in five shilling borrowed externally is from International Sovereign Bonds. The stock of debt from the International Sovereign Bond in 2015 increased by four per cent to 19 per cent of the total external debt in 2015, compared to 15 per cent the previous year.
Debt from African Development Fund/African Development Bank (ADF/AfDB) also rose by 47 per cent, while stock of debt from International Development Association/International Fund for Agricultural Development (IDA/IFAD) and International Monetary Fund (IMF) grew marginally by 11 per cent and 3.4 per cent, respectively in 2015.
Debt from Commercial banks decreased significantly to Sh5.7 billion, from Sh60 billion in 2014.This decrease is attributed to the repayment of the syndicated loan using proceeds from the International Sovereign Bond during the period under review.