Kenya’s public debt, bad for the economy

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Economists at the Institute of Economic Affairs (IEA) has raised alarm over the increased public debt especially from China.

Kenya’s current public debt stands at approximately 4.884 trillion Kenyan shillings (USD$49 billion). This is up from 42.8% in 2008. In other words, the country owes more than half the value of its economic output (GDP).

The International Monetary Fund recommends that ratios of public debt to GDP should for developing countries.

Policy analysts are compared with its national income. Kenya has a , implying that every Kenyan owes about USD$962 – and produces USD$1169 a year. In comparison, each South African owes about USD$1434 and produces USD$12,295.

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Unsustainable debt levels can be harmful. They can “crowd out” development and social programmes because huge portions of government revenue are taken away from essential services and used instead to service debt

In the worst case scenario, Kenya might be forced to cede control of its strategic national assets to foreign creditors. This has happened in some countries such as which had to hand over a strategic port to China.

IEA has requested president Uhuru to reconsider the culture of borrowing as its harming the economy.

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According to IEA, this will easen the current repayment pressure Kenya is facing on its debt obligation.

By September 2018, Kenya had borrowed Ksh.634 billion from China to finance mostly infrastructure and energy sectors despite the Chinese loans being considered expensive.

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President Uhuru Kenyatta will on Thursday begin his visit to Beijing to finalize on another Ksh.386 Billion loan.

“The President needs to negotiate for better repayment terms , if this is not done then in the next 7-10 years we might default on our loan…,” said John Mutua-IEA.

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The country’s debt currently stands at Ksh.5.15 trillion and with revenue generation having hit a plateau, IEA recommends expansion of tax base.

“The government needs to expand its tax net to also include the informal sector which will contribute largely to the country’s revenue,” said Mutua.

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Kenya has surpassed other sub-Saharan African countries in their debt to GDP ratio with the average being 45.1% compared to Kenya’s 56.2%.

This though still sustainable may get out of hand in another decade.

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The IEA made the presentation during a forum co-hosted by the Kenya Editors Guild with the President of the Guild Churchill Otieno, urging journalists to be proactive in discussing the country’s public debt.

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