Ruto plans to dispense Kenya’s huge debt repayments by 2026
3 min read
Ruto plans to deal with Kenya’s debt crisis by 2026 as the National Treasury recommends an annual borrowing limit of Sh580.9 billion
Ruto plans to deal with Kenya’s debt crisis by 2026 as the National Treasury recommends an annual borrowing limit of Sh580.9 billion.
The National Treasury estimates that in order to avoid making significant debt repayments and rebalance Kenya’s economy onto a sustainable course, the government will need until 2026.
As a result, Treasury CS Professor Njuguna Ndung’u recommended in the 2023 Medium Term Debt Strategy that the government immediately rein in its appetite for borrowing, regretting that even the loans limit of Sh720.1 billion for the Financial Year 2023/24 had deviated from the path of sustainability.
Instead, Prof. Ndung suggests a KSh580.9 billion annual borrowing cap, which will require significant income mobilization to achieve.
“Public debt sustainability indicators are projected to begin improving in 2026 after settlement of major maturities in 2024, 2025, and 2026 coupled with anticipated recovery in the exports sector as the global economy recovers from 2020 Covid-19 pandemic effects and shocks to global supply chain,” said the National Treasury in the 2023 Medium Term Debt Strategy.
This means that President William Ruto’s administration won’t have addressed the debt situation, one of his key campaign promises, until a year before the following general election, 2027.
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The Covid-19 pandemic has worsened the nation’s public debt sustainability indicator, which measures debt payment expenses as a percentage of exports, and the impending global recession has made matters worse by weakening the shilling and upsetting global supply chains.
Moreover, the country finds it challenging to refinance a portion of its debt by issuing Eurobonds due to restricted liquidity on the global financial market.
This is even as the Treasury prepares for major debt repayments in 2024, 2025, and 2026.
The Treasury also expects the debt sustainability to be aided by the implementation of the 38-month programme that Kenya has with the International Monetary Fund (IMF), which is aimed at helping the country reduce debt vulnerabilities by increasing tax revenues and cutting non-essential spending.
By end of June 2024, Kenya is expected to make a bullet payment of $2 billion (Sh245 billion) for a maturing Eurobond amid tightening liquidity in the global financial market.
President William Ruto has insisted that his priority will be the reduction of debt, noting that he will instead rely heavily on taxes to fund his budget for the next five years.
Kenya’s public debt has in the last 10 years been growing very fast as the government of former President Uhuru Kenyatta took up loans to build mega infrastructural projects such as the standard gauge railway, which gobbled up slightly over Sh600 billion.
The government has also incurred billions of shillings to build roads, set up energy projects, and expand sea and airports, a situation that has pushed up the country’s debt level to Sh9.145 trillion.
According to Treasury, for Kenya to revert public debt stock and profile to a sustainable path by 2026 annual borrowing limits should be maintained below four percent of the gross domestic product.
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