Kenyas public debt ratios improve after a higher GDP print

Kenya’s public debt metrics appear better following a greater Gross Domestic Print (GDP) by the Kenya National Bureau of Statistics (KNBS) last week.

This is after the re-basing of Kenya’s national accounts revealed that the Kenyan economy was greater by Ksh.515 billion than previously thought after the change of the base year to 2016.

According to new data from the Central Bank of Kenya (CBK), Kenya’s debt to GDP ratio now stands at an improved 67.5 per cent as of the end of June 2021 from a greater 69 per cent before the GDP rebasing.

The marginal decline in the debt metric means Kenya has about Ksh.67.50 in debt for every Ksh.100 held in the value of its economy.

CBK Governor Patrick Njoroge who appeared before Senate’s Finance and Budget Committee on Wednesday says Kenya’s fiscal deficit rate could also be lower after the higher GDP print.

“The deficits with a larger economy will be slightly lower, maybe even by as much as one per cent,” he said.

Kenya’s external debt service to export ratio, without rebasing, is meanwhile tabulated at 18.8 per cent while the external debt service to revenue ratio sits at 11.6 per cent.

Total debt service to revenue ratio is estimated at 43 per cent meaning Kenya is spending Ksh.43 out of every Ksh.100 in taxes to pay for debt.

CBK has cited increased fiscal deficits from increased capital expenditure, worsening terms on new loans, lower concessionality and exogenous economic shocks such as COVID-19 for the rise in the country’s debt.

The country recently saw its debt carrying capacity downgraded is in breach of its debt service to export ratio but has a sound present value to public and publicly guaranteed (PPG) external debt to GDP ratios.

The CBK has proposed rigidity in fiscal consolidation plans, the exploration of non-debt financing options, refinancing operations and frequent reporting on public debt and monitoring as solutions to rising debt levels.

Nevertheless, the CBK has defended the sustainability of the country’s debt terming the situation as manageable.

“From independence, every single shilling that we owe our creditors has been paid through our own resources. We have had no write offs like Uganda and Ghana whose debt ratios are as high as ours. Kenya was never classified as a heavily indebted poor country,” added Dr. Njoroge.

“It is important to compare likes for likes and not apples to oranges. Debt levels have been rising everywhere.”

A lower debt to GDP ratio may however not count for much with the country having recently transition to a nominal debt ceiling of Ksh.9 trillion, a threshold set to be broken in the 2022/2023 financial year as per Treasury estimates.

Data from the exchequer and CBK shows the stock of public debt stood at Ksh.7.7 trillion at the end of June this year to include Ksh.3.7 trillion in domestic debt and Ksh.4 trillion in external debt.