Debt shadow could hang over Kenya’s next president

About 22 million voters will choose a new president, legislators and county councilors on August 9. The election has been overshadowed by a drought that has left 4 million people dependent on food aid, while Russia’s invasion of Ukraine is pushing up grain and fuel prices worldwide.

Kenya’s economy is now the sixth largest in Africa, down from thirteenth when Kenyatta came to power in April 2013. Annual growth of 3.8% in nine years has increased gross domestic product from less than 5 trillion shillings ($92.75 billion) to 11 trillion shillings ($92.75 billion).

A close ally of the West, East Africa’s most stable country is also home to the regional headquarters of international companies such as Alphabet Inc and Visa.

However, the debt has risen to 9 trillion shillings, or 67% of GDP, from just 2 trillion, or 40% of GDP, when Kenyatta was elected.

“The increase in debt has been alarmingly fast,” said Robert Shaw, an independent economic-policy analyst based in Nairobi.

Kenyatta, who is set to step down after two terms, says loans – including $8 billion from China – have funded much-needed infrastructure and spurred development.

His government has upgraded Kenya’s crumbling, aging rail network and built more miles of paved roads than the previous four governments combined — more than 10,000, Kenyatta told parliament in November.

He also said then that the number of households connected to the electricity grid had tripled to more than 8 million.

In 2018, the International Monetary Fund classified Kenya as a country at high risk of debt problems. That risk remains, Mary Goodman, the foundation’s chief of mission in Kenya, told reporters last week.

The yield on Kenya’s dollar 2024 Eurobond hit a record high of 22% on July 15 as rising US interest rates and the war in Ukraine make riskier assets less attractive to investors.

But Julius Muia, chief secretary at the Ministry of Finance, said the debt is sustainable below 70% of GDP, adding: “The debt concern is very misplaced.”

Tabitha Karanja, an opposition United Democratic Alliance candidate for the Senate, said the government’s focus on infrastructure had left many vulnerable people.

“You can’t build roads for people who are hungry,” she said.


Kenyatta’s preferred successor, former opposition leader Raila Odinga, has promised to renegotiate the terms of the debt to extend the maturity and free up money to finance social measures and development.

His main opponent, Kenyatta’s estranged Vice President William Ruto, says he will cut borrowing and boost small businesses to boost growth and generate revenue.

But voters are primarily thinking about the rising cost of living, which many Kenyans blame on corruption.

“Parents with school-aged children are suffering a lot. Food prices are also hurting them,” said Steve Otiende, a small shop owner in Nairobi.

The government has spent 12.6 billion shillings to feed the famine-stricken communities but says it needs more.

“The ongoing drought has left us with a resource shortfall of more than 15 billion shillings needed for interventions,” said Margaret Kobia, the minister in charge of special programmes.


As in other border regions, Kenya’s problems have been exacerbated by tensions in global markets as major central banks begin to reverse their long-standing policies of cheap money.

Kenya’s international bonds have lost 29% of their value this year, with only Ghana’s doing worse in Africa.

Market turmoil forced Kenya to abandon a $1 billion bond sale last month. The government is exploring alternative financing and savings, Muia of the finance ministry said.

But the risk premium on US Treasuries that Kenya pays on its debt is now above the 1,000 basis points traditionally seen as a sign of distress.

Investor confidence could be further shaken by the election: Two of the last three presidential elections have been marred by violence, with 1,200 dead in fighting after the 2007 election.

“It’s very unclear whether the economy has the resilience to get through the coming quarters without a crisis,” said Matthew Vogel, a London-based fund manager at FIM Partners who specializes in frontier markets.

($1 = 118.6000 Kenyan shillings)

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