Data from Kenya’s central bank show that public debt (total money owed) declined between December 2023 and June 2024.

The drop in external debt – by 15.4 % – over this period does not mean that the country’s overall finances have improved. Rather, it is due to the gains in the value of the Kenyan shilling, thanks to pervasive state interventions since February 2024.

So high is Kenya’s public debt that servicing it ate up 69.6% of domestic revenues as of June 2024. This is more than double the recommended limit of 30%, making the country’s public debt unsustainable. This has been the case since at least 2019.

As a finance scholar with research interests that include development finance and economic growth in Africa, I think the high ratio of debt service to revenue leaves Kenya with few options and diminishing time to steer out of trouble.

In this article, I explore possible effects of unsustainable public debt and some ways through which Kenya could mitigate a sovereign debt default.

As late as January 2024, the International Monetary Fund (IMF) assessed Kenya’s debt as sustainable, even as it warned that “overall and external ratings for risk of debt distress remained high”. With its insistence, the government proposed a raft of tax measures, through the 2024 Finance Bill, aimed at raising additional revenues.

This ignited nationwide protests that forced the government to withdraw the bill. Consequently, the country’s tax revenue is expected to suffer a shortfall of about KES 346 billion (US$2.7 billion) during the 2024/25 fiscal year.

This constricts the government’s ability to repay debt. Despite its falling ability to pay, the government continues to pile up debt. Indeed, as recently as September 2024, senior government officials were in China negotiating additional loans.

Unless it secures a debt write-off, debt rescheduling, or similar deal to reduce the debt burden, Kenya will almost certainly end in debt default. The country must use every effort to avoid this possibility.

Data from Kenya’s central bank show that public debt (total money owed) declined between December 2023 and June 2024.

The drop in external debt – by 15.4 % – over this period does not mean that the country’s overall finances have improved. Rather, it is due to the gains in the value of the Kenyan shilling, thanks to pervasive state interventions since February 2024.

So high is Kenya’s public debt that servicing it ate up 69.6% of domestic revenues as of June 2024. This is more than double the recommended limit of 30%, making the country’s public debt unsustainable. This has been the case since at least 2019.

As a finance scholar with research interests that include development finance and economic growth in Africa, I think the high ratio of debt service to revenue leaves Kenya with few options and diminishing time to steer out of trouble.

In this article, I explore possible effects of unsustainable public debt and some ways through which Kenya could mitigate a sovereign debt default.

As late as January 2024, the International Monetary Fund (IMF) assessed Kenya’s debt as sustainable, even as it warned that “overall and external ratings for risk of debt distress remained high”. With its insistence, the government proposed a raft of tax measures, through the 2024 Finance Bill, aimed at raising additional revenues.

This ignited nationwide protests that forced the government to withdraw the bill. Consequently, the country’s tax revenue is expected to suffer a shortfall of about KES 346 billion (US$2.7 billion) during the 2024/25 fiscal year.

This constricts the government’s ability to repay debt. Despite its falling ability to pay, the government continues to pile up debt. Indeed, as recently as September 2024, senior government officials were in China negotiating additional loans.

Unless it secures a debt write-off, debt rescheduling, or similar deal to reduce the debt burden, Kenya will almost certainly end in debt default. The country must use every effort to avoid this possibility.