Alarm bells as public debt rises by almost Sh500b in 120 days

Central Bank of Kenya (CBK) data shows that Kenya's debt grew by Sh481 billion between September last year and January this year to stand at Sh9.182 trillion, edging toward the Sh10 trillion borrowing cap set by Parliament last June.

The sharp rise in public debt coincides with a steep increase in servicing outlays.

CBK, however, issued a disclaimer, saying the January data compiled by the banking regulator and the National Treasury is provisional, pointing to possible higher debt levels when the months of February and March are taken into account.

Significant debt repayment has exposed Kenya to higher interest rates at a time the global loan market conditions have tightened, limiting the country's borrowing window as the shilling continues to depreciate against the dollar and major currencies.

State House's top economic adviser David Ndii over the weekend hinted the government is facing an acute cash crunch amid the steeper debt obligations.

To demonstrate the magnitude of the crisis, Dr Ndii revealed that President William Ruto's administration avoided a default on its sovereign debt obligations without divulging additional details on the economic risk.

A default is a failure by a country's government to pay its debt and has grave financial implications for the economy.

Central Bank of Kenya (CBK) Governor Patrick Ngugi Njoroge during a past presser in Nairobi. [File, Standard]Caption

CRA had said Treasury's projections show the country's total stock of public debt to be Sh10.133 trillion in the financial year 2023/24.

The Sh10 trillion debt ceiling, which Parliament established, is the maximum amount the government can borrow. It's a limit on the national debt.

If the debt ceiling isn't raised after it's breached, further borrowing will not be possible, dealing a blow to the new government's plan to raise debt to fund national programmes.

The Kenya Kwanza administration targets to borrow Sh3.6 trillion in its first five-year term.

National Treasury Cabinet Secretary Prof Njuguna Ndung'u earlier maintained the State would opt for direct concessional budget funding from multilateral lenders instead of expensive domestic and foreign commercial debts.

For new loans, Treasury will strive to borrow at "favourable rates, negotiate repayment periods that are not stressful, and invest in enterprises that give good socio-economic returns."

Prof Ndung'u said recently reliance on institutions like the International Monetary Fund (IMF) and the World Bank in the medium term to bridge the budget deficit would help reduce debt vulnerabilities.