Debt burden dims Kenya's 2023 growth - Allianz

The prevailing constraints in the forex market and pressure on debt repayments will weigh down Kenya's growth prospects to 4.4 percent this year.

This is according to Economic Outlook 2023-2024 by Allianz Research.

Higher interest payments this year, which now accounts for 25.5 percent of fiscal revenue could mean less spending on social safety nets and infrastructure projects with immediate benefits, which could spur economic growth.

The outlook comes just a week after Global ratings agency Standard and Poor (S&P) also cut Kenya’s ratings outlook from stable to negative on concerns about the country’s debt servicing capacity.

“Interest repayments in Kenya are costing one fourth of the country’s fiscal revenue which is quite high. The higher it is the less you are going to create projects that will create dividends for Kenya,” said Allianz SE Chief Economist Ludovic Subran.

According to Allianz, 2023 projections are however lower than policymakers’ GDP growth forecast of 5.2 percent this year and above 6 percent in the medium term.

It notes that interest rate payments will drain additional reserves in 2023 given that Kenya is among African countries with high debt susceptibility.

The interest rate on Kenya's debt grew by 36 per cent as at December 31, 2022, further worsening the country's debt service vulnerability. 

According to the Nationa Treasury's latest Medium Term Debt Management Strategy, the total interest payments as a percentage of GDP was at 5.3 per cent comprising 3.9 per cent for domestic debt and 1.4 per cent for external debt.

The maturity of domestic debt is highest in 2023 majorly due to maturing short-term government securities.

The findings however say Kenya will register an improved growth of 5.2 per cent in the subsequent year. 

The report further says that public-debt-sustainability risk analysis shows that Egypt, Kenya, Malawi, Tunisia and Uganda are among the countries highly susceptible to debt distress.

“This may complicate the roll-over of maturing debt and widen budget deficits due to increased subsidies and transfers to mitigate the impact of higher energy and food prices on people,” the report reads in part. 

Allianz says lower regional demand; prolonged effects of costlier imported feedstock, and limited availability of hard currency may reduce the export potential in 2023.

Already the shilling has depreciated by 12pc against the dollar within the past 12 months to exchange at Sh129.59.