- Kenya spends an average of Sh90 billion every month on debt servicing.
- Developing regions borrow at rates that are 2 to 4 times higher than those of the United States and 6 to 12 times higher than those of Germany.
Kenya is among 54 developing countries spending more than 10 per cent of total revenues on interest payments, a situation economist’s term as worrying.
The Chief Economists Outlook by the World Economic Forum released Wednesday expects defaults to rise in developing economies over the next year and is worried that it will have an impact on stability around the world.
The WEC report cites Kenya where deadly protests erupted this summer after the government attempted to raise taxes to mitigate a debt crisis that saw interest payments swell to absorb almost 60 per cent of total government revenues.
“Looking to the year ahead, a majority of respondents note that current debt dynamics are going to undermine government efforts to boost growth and leave countries poorly prepared for the next economic downturn,” the report notes.
It adds that the difficult fiscal position that many countries are in means they are likely to struggle to prepare for numerous structural changes that are underway, including the energy transition, demographic shifts and evolving national security needs.
In response to the debt situation, economists and policymakers are contemplating relief mechanisms – especially in times of crisis. This month, for instance, Spain called on creditors to incorporate “pause clauses” that allow developing countries to suspend debt payments during a disaster period
A World of Debt 2024 report by the United Nations Trade and Development (UNCTAD) shows that the country spends an average of Sh90 billion every month on debt servicing, approximately Sh1.08 trillion in the current financial year.
In July, the country spent $533 million (close to Sh70 billion) to service external debt alone, with 80 per cent paid to China for loans contracted during the construction of Standard Gauge Railway.
With the country's total revenue projected at Sh2.9 trillion, it means that Kenya will spend at least 37.2 per cent of its revenue to pay interest on debt, way above the 35 per cent limit set by the World Bank.
This puts Kenya on the list of 10 countries that will shoulder 67 per cent of the continent's debt.
About 67 per cent of Africa's total external debt stock is borne by Egypt 14.5, South Africa, 14.3, Nigeria 8.4, Morocco 5.9, Mozambique 5.5, Angola 5.3, Kenya 3.7, Tunisia 3.4, Sudan, 3.1 and Ghana three per cent.
According to UNCTAD, developing countries’ net interest payments on public debt reached $847 billion in 2023, a 26 per cent increase compared to 2021.
"This dynamic is largely a result of high borrowing costs which increase the resources needed to pay creditors, making it difficult for developing countries to finance investments,'' the report reads.
According to the UN body, developing regions borrow at rates that are 2 to 4 times higher than those of the United States and 6 to 12 times higher than those of Germany.
Available data shows that Africa is being charged an average rate of 9.8 on external bonds, while European countries like Germany are being charged a mere 0.8 per cent.
The US on the other hand is being charged 2.5 per cent; Asia and Oceania 5.3 while Latin America and the Caribbean are charged 6.8 per cent.