Kenya's Public Household Debt Doubled in Past 5 Years

(Bloomberg) -- If government debt was equally divided between Kenya’s households, each would have to pay 400,000 shillings ($3,963) after public borrowing ballooned to 5.05 trillion shillings in September.

The amount is double what they would have had to pay in 2013, according to ICEA Lion Asset Management Ltd., the nation’s fourth-largest fund manager. Private household debt has risen 50 percent to 65,000 shillings, the Head of Research Judd Murigi told reporters in the capital, Nairobi.

“Salaries in private and public sectors average 600,000 shillings a year, so public debt is two-thirds the average annual salary in the public sector, and it may even be higher than this in the private sector,” Murigi said.

Households have the highest share of private-sector credit at 28 percent, followed by trade at 14 percent and real estate at 13 percent, according to ICEA, which has 130 billion shillings of assets under management. In contrast, agriculture, which contributed 35 percent of gross domestic product in 2017, received less than 5 percent.

“We have seen a lot of credit going to trade and personal households, which are not necessarily long-term sustainable economic agents,” Murigi said. “We want to see more lending going to manufacturing and agriculture, which are the core sectors of the economy.”

Before Kenya introduced an interest-rate cap on commercial lending rates in 2016, the private-sector credit penetration was 35 percent of GDP. While ICEA expects this to decline to 25 percent by the end of this year, it is unlikely to result in decelerating output because lending growth has had a muted impact on economic performance, Murigi said.

The central bank estimates that the introduction of the rate cap slowed economic growth by 0.4 percent last year.

©2018 Bloomberg L.P.