Kenya Lawmakers Balk as Debt Servicing Costs Jump to $11 Billion

Kenya may be heading toward a default unless the government of President Uhuru Kenyatta revamps its debt, lawmakers said in a report.

The East African nation’s debt servicing costs are poised to surge to a record 1.17 trillion shillings ($11 billion) in the year starting July 1, parliamentary budget office said in a report. That exceeds the administration’s 660 billion shillings proposed spending on development projects.

The increase in debt repayments “indicates a growing level of fiscal inflexibility and therefore increased exposure to fiscal risks or debt default, in absence of debt restructuring,” according to the report by the agency, which advises lawmakers on budget policy. It implies “that borrowing for development expenditure financing might no longer be a viable fiscal principle.”

Kenya Lawmakers Balk as Debt Servicing Costs Jump to $11 Billion

Calls to revamp the nation’s rising debt are growing louder even as it plans to borrow as much as $7.3 billion in the Eurobond market over the next two years, prompting the International Monetary Fund to say that the country may be at the risk of debt distress. Meanwhile, Kenya’s lawmakers want to narrow the government’s fiscal deficit to 7.5% of gross domestic product in the next fiscal year, from 8.7%, according to the report.

By the year through 2024, Kenya’s debt servicing expenses will have more than doubled from 2020, with spending on development infrastructure remaining little changed. Borrowing is restricted to funding for development projects, according to Kenya’s public finance management rules.

The government should put in place mechanisms to substitute borrowings with alternative financing such as public private partnerships, particularly for large infrastructure expenditure, lawmakers said.

Kenya is seeking an extension to a six-month debt service holiday that ends in June, central bank Governor Patrick Njoroge said last week Thursday.

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