Kenya approaching debt distress - AFDB

Loan service to export now exceeds 20% of GDP in Kenya

In Summary
  • The region's economy is expected to recover despite high adeptness.
  • Somalia, Sudan and Eritrea are already in debt distress
Graph showing Kenya's surging debt.
DEBT: Graph showing Kenya's surging debt.

Kenya, Ethiopia, Burundi, South Sudan and Djibouti are at high risk of debt distress due to a sharp increase in loan service burden.

The African Development Bank's East Africa Regional Economic Outlook 2021 released Wednesday shows these countries have breached the high-risk debt service ratio due to reduced export performance last year. 

According to the pan African lender, debt service to export now exceeds 20 per cent of GDP in Kenya and has risen substantially in Ethiopia, Uganda and Tanzania since 2010.  

According to a debt status report by the Central Bank of Kenya, the country's external debt service to exports ratio declined from 19.2 per cent in June 2000 to 3.5 per cent in 2010, then rose to a high of 31 per cent in June 2019.

'' The high ratio in 2019 was mainly on account of a one-off $750 million Eurobond repayment. The ratio has been declining in the last two years also due to an improvement of the terms on new external loans,'' CBK's report reads in part. 

Somalia, Sudan and Eritrea are already in debt distress while Uganda, Rwanda and Comoros are moderate. The debt burden is low in Tanzania. 

Several other international lending and credit rating agencies have also raised eyebrows on Kenya's debt situation, with the International Monetary Fund (IMF) for instance raising the country's debt distress to high from moderate due to the impact of the coronavirus crisis. 

Mid this month, Pan African rating agency, Agusto & Co has termed Kenya's debt situation as 'moderately high risk', affirming creditworthiness at B+.

In an analysis of Kenya's economy, the Nigeria-headquartered rating firm said the country's elevated debt levels due to its budget deficit, with a significant impact on interest burden has increased vulnerability to internal and external shocks.

The region's economy is expected to recover despite high adeptness.

According to AFDB, East African's GDP growth is projected to recover to an average of 4.1 per cent in 2021 from 0.4per cent in 2020, supported by the global economic recovery.

However, the slow rollout of Covid-19 vaccines and risks of spikes in infections could dampen that outlook.

''The pandemic has had diverse impacts across the region, with countries highly dependent on tourism being the hardest hit,'' AFDB said.

The pan-African bank recommends a raft of policy interventions required to accelerate the region's recovery and build resilience in the wake of Covid-19, including ramping up vaccinations and designing and implementing economic stimulus packages and recovery strategies toward credible fiscal consolidation programs

The report touched on  13 countries: Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Rwanda, Seychelles, Somalia, South Sudan, Sudan, Tanzania, and Uganda.