Kenya's economic recovery in 2021 will be sluggish due to higher debt levels, weaker debt affordability, and low buffers, Moodys investor service has said.
According to the outlook, Kenya's tourism dependent economy growth recovery will be slow with far-reaching implications for weak revenue generation as debt costs will intensify post the Covid-19 pandemic.
"Most Sub-Saharan African governments' debt burdens will stabilise at materially higher levels in 2021, with the average debt burden for the region at around 64 per cent of GDP in the near to medium term," said Kelvin Dalrymple, Vice President – Senior Credit Officer at Moody's Investors Service.
Kenya's debt ceiling is set to cross the current Sh9 trillion as the National Treasury faces one of the most challenging moments of preparing the 2021/22 budget amid revenue constraints.
Official data shows that Kenya’s debt stood at 69.2 percent of the Gross Domestic Product (GDP) in August 2020, having climbed from 61.7 percent at the end of 2019 and 50.2 percent at the end of 2015.
Thinning tax revenues occasioned by economic disruptions pegged to the containment of the Covid-19 pandemic forced Kenya to take up more loans in 2020.
Although excessive borrowing was occasioned by the pandemic that has disrupted economic activities, the World Bank and IMF asked the government to return to its belt-tightening plans as soon as possible to avert a financial crisis.
The IMF’s latest assessment of Kenya’s debt sustainability shows the country is likely to breach the threshold over the next decade going by the level of external loans against the value of dollar-earning exports, tax revenues and GDP, factors that drive lending decisions and pricing of sovereign debt.
"We do not expect debt burdens to come down in the foreseeable future as revenue generation capacity remains weak. Higher debt loads, lower government revenue, and higher interest costs will increasingly challenge debt affordability. Contingent liabilities from state-owned enterprises also pose an additional risk." said Dalrymple.
The World Bank has however emphasised that Kenya’s debt position was sustainable, with the country yet to face repayment difficulties.
The international lender also on the contrary expects Kenya to lead the Sub-Saharan region out of the economic doldrums of 2020.
It sees sees the Kenyan economy growing at 6.9 per cent, the highest rate in the region, from a projected 2020 contraction by one percent.
The country on Monday received a debt payment relief from Paris Club creditors that will see the country delay due loans worth $802 million to the end of June.
The debt suspension plan is expected to help Kenya to improve debt transparency and debt management.
Sub-Saharan African countries have been tapping cheap dollar loans that saw outstanding debt nearly double to $625 billion between 2011 and 2019, according to the World Bank.
According to Moodys, the countries also face a wide range of institutional and governance challenges, limiting their ability to deal with the coronavirus shock.
The effects of the pandemic that have triggered higher unemployment and income inequality, along with latent or rising domestic political risks, will likely increase social risks across several countries.
Growth recovery will vary across Sub-Saharan Africa, with concentrated and energy exporting economies to recover at a slower rate due to low energy prices.
Non-energy commodity exporters in East Africa and West Africa will remain the most dynamic economies, with growth driven by domestic demand and high public investment rates