President William Ruto's address to the United Nations General Assembly on September 20, 2023, sparked anxiety over Kenya's debt issues. In his speech, Ruto said that Kenya's debt-to-GDP ratio had risen to 67% and that the country was spending more on debt servicing than on development. He also warned that Kenya could be at risk of a debt crisis if it did not take action to reduce its debt burden.
Ruto's speech comes at a time when Kenya is facing a number of economic challenges, including high inflation, a weak shilling, and a slowdown in economic growth. The country's debt burden is also a major concern for investors and lenders.
According to statistics released by the Central Bank of Kenya (CBK), rates on Kenya’s 10-year Eurobond due in June 2024 ranged between 18.4% and 18.7% last week, illustrating the increased risk that investors are placing on Kenya’s short-term debt. Kenya has guaranteed investors on several occasions that it will refinance a sizable $2 billion debut 10-year Eurobond, eliminating the prospect of a sovereign default.
Investors are concerned about Kenya’s capacity to refinance its quickly foreign obligations in light of President William Ruto’s recent address at the UN General Assembly asking for debt restructuring for poor countries.
The President did not mention Kenya but stated that 52 other low-income nations were at high and moderate risks of experiencing debt distress, along with 10 additional low-income countries. “The global community must therefore develop a debt restructuring initiative that does not wait for a plunge over the cliff before providing relief,” stated President Ruto.
The International Monetary Fund (IMF) has said that Kenya's debt is sustainable, but that the country needs to take steps to reduce its debt-to-GDP ratio over the medium term. The IMF has also recommended that Kenya reduce its budget deficit and improve its revenue collection.
Ruto's government has said that it is committed to reducing Kenya's debt burden. The government has proposed a number of measures to reduce debt, including cutting government spending, increasing revenue collection, and privatizing some state-owned assets.
However, some economists have warned that the government's plans to reduce debt may not be enough. They say that the government needs to do more to stimulate economic growth, which would help to increase revenue collection and reduce the debt-to-GDP ratio. But there are other ways to stimulate the economy than relying on demand-side economics. Supply-side economics is a much more efficient approach to stimulate economic growth and reduce the national debt.
The government's plans to reduce debt are also likely to face opposition from some Kenyans. The government's plans to cut spending could lead to job losses and reductions in public services. The government's plans to privatize state-owned assets could also lead to job growth and lower prices for consumers due to competition.