January 29, 2025
Kenya has exceeded critical debt sustainability thresholds established by the International Monetary Fund (IMF)
Kenya’s financial policies unsustainable - Report
NAIROBI, Kenya, Jan 27 – Kenya is facing an elevated risk of debt distress according to the 2025 Macro Fiscal Analysis Snapshot (MFAS) report by the Institute of Public Finance (IPF), which raises concerns about the sustainability of Kenya’s financial policies.
Breach of IMF Debt Sustainability Thresholds
The IPF report reveals that Kenya, despite securing a $2 billion Eurobond in 2024, has exceeded critical debt sustainability thresholds established by the International Monetary Fund (IMF). These include the debt-to-GDP ratio, the debt service-to-revenue ratio, and the external debt service-to-exports ratio benchmarks designed to measure a country’s capacity to manage its debt obligations effectively.
Bernard Njiiri, a senior research analyst at IPF, warned of dire economic consequences if immediate corrective measures are not implemented.
“Kenya has breached all the key debt sustainability parameters set by the IMF. Any shocks to the economy, such as global market disruptions or local economic downturns, could have severe implications on growth and stability,” Njiiri stated.
Economic Vulnerability
The report highlights the vulnerabilities posed by Kenya’s limited fiscal buffers, which are essential for cushioning the economy against external or domestic shocks. The nation’s ability to manage its debt and sustain public services could be significantly compromised if borrowing costs rise or economic growth slows further.
Additionally, Kenya’s foreign exchange reserves have yet to recover to optimal levels, further exacerbating the risks posed by its reliance on external borrowing to fund development projects and budget deficits.
Fiscal Restraint and Policy Reforms Needed
The IPF has urged the government to prioritize fiscal discipline by reducing reliance on debt financing and scaling back new tax measures that disproportionately impact citizens. Building robust foreign exchange reserves and cutting non-essential expenditures are also key recommendations to restore financial stability.
Concerns Over Budget Proposals
Scrutiny over Kenya’s fiscal policies intensified last week when economist Ashish Chadda criticized the Treasury’s Budget Policy Statement for the fiscal years 2025/26 to 2027/28. Chadda expressed concerns about the planned increase in government expenditure, which is projected to rise by over Sh1 trillion between 2023 and 2026.
He also questioned the feasibility of the government’s projected revenue growth, much of which hinges on the implementation of new tax measures.
“The anticipated revenue increase is unrealistic and may place an additional burden on already overtaxed citizens,” Chadda warned, adding that the move could dampen consumer spending and economic activity.
Impact on Citizens and Economic Growth
Kenya’s fiscal challenges have raised concerns about the economic burden on its population. Rising taxes and inflation have strained household budgets, while public services and development initiatives risk being deprioritized due to debt servicing obligations.
Economists warn that the country’s heavy reliance on external borrowing may hinder long-term growth and investment. Debt servicing currently consumes a significant portion of government revenue, leaving little room for critical infrastructure projects or social programs.
Kenya must adopt comprehensive reforms to stabilize its economy. This includes enhancing domestic revenue collection through efficient tax systems, curbing corruption and wastage in government spending, and prioritizing investments that yield high economic returns.
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