- Since 2010, according to the report’s available data, Kenya's debt has been on rising trend moving from $8.9 billion (Sh1.4 trillion)
- World Bank says the debt servicing costs on public and publicly guaranteed debt are projected to grow by about 10% for all developing countries over the 2023–24 period.
Image: EZEKIEL AMING'A
Rising debt obligation in developing states is increasingly having a pinch on their budgets, with the payments diverting more spending away from health, education, and other critical needs.
This is according to the World Bank, which in its latest 2023 International Debt Report, says low- and middle-income countries, inclusive of Kenya, paid a record $443.5 billion (Sh68.8 trillion) to service their external public and publicly guaranteed debt.
This is as of 2022, the latest year for which data are available by the lender.
“Over the past decade, the rise in the external debt stock of these countries has outpaced economic growth, raising concerns about these countries’ ability to service their debt,” the lender says.
“The situation is especially worrisome in the poorest countries that are eligible for International Development Association (IDA) resources, where external debt stocks have risen at an even faster pace than other LMICs.”
It adds that debt servicing costs on public and publicly guaranteed debt are projected to grow by about 10 per cent for all developing countries over the 2023–24 period, and by nearly 40 per cent for low-income countries.
“Countries eligible to borrow from IDA are likely to face a rough ride in the coming years; interest payments on their total external debt stock have quadrupled since 2012, to an all-time high of $23.6 billion.
According to the lender, the payments are consuming an ever-larger share of export revenues, putting some developing states just one shock away from the debt crisis.
The report estimates Kenya’s external debt stocks for the year ending 2022 at $41.6 billion (Sh6.5 trillion), a 9.3 per cent increase from 2020’s record of $38 billion (Sh5.9 trillion).
Since 2010, according to the report’s available data, the debt has been on a rising trend moving from $8.9 billion.
For the year ending 2022, Kenya's long-term debt stock accounted for $35.6 billion (Sh5.5 trillion), whereas short-term one accounted for $2.6 billion (Sh403.2 billion).
“Use of IMF credit and the Special Drawing Rights allocations totaled $3.4 billion (527.3 billion),” the report reads.
Notably, the country's interest payments on long-term facilities have also been on the rise, increasing by about 17 per cent in the past year to 2022.
The lender thus says as countries grapple with an array of destabilizing economic forces, some are at increasing risk of tumbling into a debt crisis.
“Today, one of every four developing countries is effectively priced out of international capital markets. In the past three years alone, the number of sovereign debt defaults in these countries has surged to 18, outstripping the total of the previous two decades,” it says.
"This decade-long asymmetry between economic growth and debt accumulation has created or exacerbated debt vulnerabilities in many LMICs, and actions to address these vulnerabilities have become increasingly more urgent."
Nevertheless, it says that currently, about 60 per cent of IDA-eligible countries are assessed at high risk of debt distress or are already in debt distress.
However, despite the surging debt obligation pressure, the lender notes that the external debt stock of LMICs fell in the year under review, 2022, for the first time since 2015, decreasing by 3.4 per cent.
This from $9.3 trillion in 2021 to $9.0 trillion in 2022.
The decrease was due to negative debt flows (disbursements minus principal repayments), and the appreciation of the US dollar against other major currencies in which external debt of LMICs is denominated.