Kenya has a 35 per cent chance of defaulting on its sovereign debt in the next five years, according to a Financial Times survey (see P14).
The most likely defaulter is Argentina with a probability of 55 per cent but Zambia has just defaulted on its sovereign debt.
Debt restructuring is a possibility but lenders like China may reject it and seize securities like Mombasa port. Even if that is avoided, Kenya will still pay more for its international borrowing because lenders perceive greater risk.
Kenya’s public debt quadrupled from $8.55 billion in 2009 to $34.2 billion, around 20 per cent of which is owed to China.
Local companies in Kenya are finding it increasingly difficult to get paid by government as IFMIS is switched off for long periods of time.
Government is in an acute cash squeeze, exacerbated by the drop in tax revenues following the Covid-19 slowdown. The borrowing binge must end.
Government should now suspend all new infrastructure projects for the foreseeable future. The only capital spending should be to complete projects that have already been started. Otherwise a 35 per cent chance of default may become 100 per cent.
Quote of the day: "The real voyage of discovery consists not in seeking new landscapes, but in having new eyes."
Marcel Proust
The French novelist died on November 18, 1922
