- The emerging markets have been projected to contribute about 82 per cent of the total share of global GDP this year.
- About 25 per cent of them are at high risk and facing “default-like” borrowing spreads.
Image: WILFRED NYANGARESI
Rising debt and distress in developing economies are a major threat to their contribution to global growth, International Monetary Fund (IMF) now says.
This reverses initial indicators that had linked these economies to powering global growth this year, heading into 2024.
According to the lender's latest future prospects outlook in preparation for this year's G20 summit in India, about 15 per cent of low-income countries are in debt distress and an additional 45 per cent are at high risk of debt distress.
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“Further among the emerging economies, about 25 per cent are at high risk and facing “default-like” borrowing spreads even as the global economy faces a turning point,” IMF says.
This as policy makers are urged to protect vulnerable people and economies against adverse spillovers, including effects of a stronger US dollar and capital outflows.
The emerging markets have been projected to contribute about 82 per cent of the total share of global GDP this year, compared to 18 per cent of advanced economies.
Next year, they are projected to account for 81 per cent but the lender notes that debt distress among these nations could stall their contributions.
In Kenya, debt servicing has been a pain to the taxpayers who have been hit by a series of tax increments in efforts to reduce foreign debt pressures as well as narrow the government’s fiscal deficit.
Maturity of some of the loans amidst the weakening Kenyan shilling against the dollar has put pressure on the National Treasury to seek additional billions for repayment of mounting foreign debt.
The Kenyan Shilling has continued depreciating consequently against the US dollar, hitting a new low of 126.85 yesterday, posing much pressure on the country’s external debt.
It opened the year at 123.42 with the local currency shedding about 11 per cent of its value to the dollar year-to-date.
It is the second time the reserves are dropping below the statutory levels in less than three months.
Data from Treasury places domestic debt stock at the end of October 2022 at 50.2 per cent, a five-year high, while external loans represent 49.8 per cent of the total debt portfolio.
A probable reason that could plunge the country into debt distress as echoed by the World Bank and IMF who say Kenya is currently at risk of high debt distress.