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World Bank against Kenya’s domestic borrowing plan; calls for foreign revenue sourcing

The World Bank has warned of fresh risks in Kenya’s domestic borrowing plan which is crowding out the private sector.

According to a recent study, the Bretton Woods institution seems to be advocating that the government reduce its reliance on domestic debt, which carries the risk of dislodging the private sector.

This happens by limiting credit and fuelling higher interest rates, making it more expensive for companies and individuals to borrow. 

The World Bank has so indicated that it is crucial for countries like Kenya with significant debt loads, such as the maturing Sh292 billion Eurobond, to widen their search for additional and alternative sources of foreign finance. 

“Several countries, including Angola, Ghana, and Kenya, issued Eurobonds in 2021 and early 2022, representing significant refinancing risks for large redemptions,” said the Word Bank in a new report published earlier this week. 

“In many cases, reprofiling of debt more toward international creditors is a deliberate and well-founded strategy to reduce debt service costs and reduce the domestic distortions from debt 


World Bank statement comes as the National Treasury warned the government’s headroom for more public borrowing is narrowing.

Treasury Cabinet Secretary Njuguna Ndung’u said recently this is compounded by lower-than-expected revenues, which could impact the government’s ability to deliver on its ambitious campaign pledges. 

“The economy faces two extreme constraints: financing constraints as tax revenues generated cannot finance the development we wish to have, and on the other extreme we have limited headroom for debt,” he said. 

“We are choked with inherited debt that must be paid.” Experts have pointed out that Kenya faces a risk of commercial banks cutting lending to the economy because they are increasingly buying into government bonds. 

The World Bank has previously cautioned that rising borrowing prices and challenging market conditions may make it difficult for the government to refinance approaching debt maturities. 

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Kenya’s lower credit rating from international rating agencies, which indicates taxpayers would have to pay more to service the projected borrowing amid tighter global market conditions, is the backdrop to this.   

The prognosis for the nation’s credit rating was recently reduced by the international ratings agency Fitch, which decreased the likelihood of obtaining affordable loans on the global market. 

A credit rating or outlook cut is significant because it may influence a country’s cost of borrowing in the international financial markets. 

This means President William Ruto’s regime may have to hike taxes, cut spending, or seek costly external commercial loans amid the ongoing economic crisis.

“Overall public debt remains sustainable; however, risks persist,” said the World Bank in its latest regular Kenya Economic update released in June.  

The World Bank singled out the $2 billion (Sh290 billion) bullet repayment. 

“The upcoming bullet payment of previous commercial loans (Eurobond repayment due in 2024) has created a surge in refinancing risks as the cost of borrowing in the external financial market rises,” said the World Bank.  

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