In recent years, Kenya has experienced a relentless depreciation of its native currency, the shilling. Unfortunately, this development has created a chain of negative repercussions for the country and its citizens. One of the most trying impacts has been a steady and exhausting rise in public debt.
According to the National Treasury Cabinet Secretary, the debt currently stands at KSh 9.6 trillion (equivalent to around $80 billion), and this number is likely to exceed the KSh 10 trillion debt ceiling before the end of the year. Unsurprisingly, matters have begun to take a turn for the worse, as the economy and the citizens of Kenya struggle to cope with the growing strain.
This dire situation can be traced back to the shilling’s devaluation and its impact on key industries. In the past few months, the faltering currency has made imports more expensive and registered a considerable fall against major international currencies. While the situation may seem cyclical, the culprit has been a confluence of factors, including but not limited to, overspending by the government, a widening fiscal deficit, and declining foreign investments.
Despite a slight decrease in the fiscal deficit, the reality remains that the public debt is expected to reach KSh 10 trillion before year’s end and the Kenyan economy faces a very real threat of collapsing. To this end, the government needs to take decisive action to restore economic stability, crack down on private and public sector corruption, and incentivize investment, both domestic and foreign.
At the same time, citizens of Kenya have a role to play as well. To begin, fiscal discipline is a must – both to ensure in the midst of these trying times that the country does not accrue more debt, and that proceeds from taxes and investments are used efficiently. Furthermore, citizens must engage in resource management initiatives, such as tax and investment programs, to shore up the economy.
The unforeseen depreciation of the shilling has led to a cascade of negative effects, one of which is the public debt. Addressing this issue is essential, and must involve a multifaceted approach in order for the KSh 10 trillion debt ceiling.
According to recent reports, the government of Kenya is currently allocating an increasing amount of money to cover interest payments from public debt. During the first seven months of this current financial year, ending in October, the spending on public debt interest totaled KSh 379 billion. That’s a significant increase from the KSh 329 billion that was allotted for the same period in the year prior.
Experts believe that this number might increase even more by the end of this fiscal year. According to the latest estimates, the spending on public debt interest could reach KSh 650 billion by the time the financial year draws to a close. This figure is even more astonishing when compared to the KSh 440 billion that was spent on public debt interest during the 2018-2019 financial year.
The Kenyan government’s rising expenditure on public debt interest has a number of contributing factors. One of these factors is the fact that the government has had to take on more loans in order to fund its various operations. These funds are then used to finance various public services and projects, such as infrastructure, education and healthcare. As the government has had to take on additional loans, the interest charges associated with these loans have also risen.
The other factor behind the government’s increasing public debt interest spending is linked to a rising interest rate environment. The Central Bank of Kenya has recently raised the Central Bank Rate from 9% to 9.5%. This increase in the Central Bank Rate has, in turn, caused the interest rates on Kenya’s treasury bills and bonds to rise, thus increasing the amount of money the government must spend on public debt interest.
These figures are certainly concerning for the Kenyan government, as the spending on public debt interests can easily distract from funds allocated for development projects and public infrastructure. Thus, it is important for the government to come up with a way to better manage the money being spent on public debt interest.
The government has already implemented a few measures to reduce its public debt interest payments, such as cutting other expenditure. The government is also working on promoting savings and investments and utilising innovative financial instruments to attract financing.
The public debt crisis in Kenya is a dire situation, with the nation’s debt having increased from 49.6 percent of GDP in 2011 to 69.5 percent in 2019. The rapid rise in the nation’s public debt has cast a dark shadow on the Pakistani economy, and the prospects for the future are sobering.
Kenya’s public debt has been caused mainly by recurrent external shocks, inadequate fiscal management, and an inability to pay for basic services for the population. These challenges have resulted in underlying macroeconomic fragility, which has put a strain on the nation’s public finances.
The recession resulting from the Covid-19 pandemic has only increased the severity of the public debt crisis in Kenya. Tax revenue has decreased dramatically as the economy shrank. With rising prices, salaries have not kept up with inflation, meaning that citizens have less money to pay back debt. This is further compounded by increasing borrowing as the government attempts to keep the economy afloat.
The most concerning aspect of the public debt crisis however, is the significant increase in external debt obligations that Kenya has taken on. External debt now accounts for 24.3 percent of GDP, a figure that has increased from 9.5 percent in 2011. This has serious implications for the future of the Kenyan economy as a whole, as the nation’s capacity to service this debt is strapped.
The public debt crisis in Kenya is emotional and economic, and it has far reaching implications for the population. Poverty levels have been increasing and basic services have been cut back as the government struggles to service its increasing debt load. This has brought about a humanitarian crisis for Kenyan citizens, who have had to cope with underfunded essential services like healthcare and education, and deteriorating living standards.
The seriousness of the public debt crisis in Kenya is undeniable. Unless a bipartisan approach is taken by the political class, the nation will continue to be shackled by unsustainable debt and the economic prospects in the country will remain limited. As a nation, we must heed the warnings and work together to manage the debt crisis. The future of Kenya, and the welfare of its citizens hang in the balance, and it is up to us to take action now.
It is evident that Kenya’s unending depreciation of the shilling has had far-reaching consequences, the most distressing of which has been a considerable and continual increase in public debt. This state of affairs has been detrimental to the Kenyan people and economy as a whole. Without substantial and expeditious intervention, the nation is unlikely to experience any meaningful relief from its current predicament.