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Kenya's mounting debt poses economic risks: analysts

Xinhua, December 13, 2016 Adjust font size:

Kenya's first rising public debt poses fiscal challenges to the country, which may further affect its credit ratings in the international market, analysts have warned.

The country's credit rating currently stands at B+ for the long-term and B for the short-term.

East African nation's public debt stands at 36 billion U.S. dollars, with external and internal debt contributing 48 percent and 52 percent each respectively.

The debt, which is 50 percent of the gross domestic product, increased from 29 billion dollars at end of September 2015 to 36 billion dollars in September.

The rise, according to the Treasury, is due to more absorption of domestic debt and increased external debt due to exchange rate fluctuations and disbursements from external loans.

"The immediate risk is slowdown in economic growth due to the crowding out of private sector as the government competes with the public for funds," analysts at Cytonn, the Nairobi-based investment firm said Monday.

According to Cytonn, the government appetite for loans has increased due to three things. First is the slow growth in revenue collection compared to the budget growth.

The revenue growth has averaged 14.2 percent over the last five years while budget growth has been at 15.4 percent over the same period resulting into more borrowings to fund the deficit,

Secondly, there has been significant investment in infrastructure projects that has led to intensified borrowing though this will eventually result in an increase in economic activity over a period of time.

Thirdly, the government continues to borrow money from the market at high rates despite the initiatives being in place to achieve a low interest rate environment.

"The ability to service debt is key and is usually measured by revenue collection to total outstanding payments required, both in principal and interest payment. The government at times borrows to pay off their debt," said the investment firm.

For the current fiscal year, the total allocation to debt servicing was 2.5 billion dollars, having risen from 1.7 billion dollars in 2011, a growth rate of 44 percent over the last five years.

Treasury is expected to utilize 40 percent of tax revenue collection for debt repayments in 2017, up from 32 percent in the current fiscal year 2016/2017.

Kenya currently lies in the safer bounds on debt levels, according to World Bank and International Monetary Fund, but this could change if debt levels continue to rise. Endit