Kenya's new administration targets borrowing 89% more than predecessor in first term

President William Ruto’s administration plans to borrow Sh3.6 trillion in his first five-year term, equivalent to 89 per cent of the record Sh4.1 trillion borrowed by his predecessor in the five years to June 2022.
Kenya is at high risk of debt distress, and the country currently spends more than half of its tax revenue on servicing liabilities, according to the International Monetary Fund (IMF).

President William Ruto's administration in Kenya has announced plans to borrow Sh3.6 trillion in his first five-year term, a significant increase from his predecessor, Uhuru Kenyatta's record borrowing of Sh4.1 trillion in the five years leading up to June 2022.

This new amount is equivalent to 89 per cent of Kenyatta's borrowing and is more than the Sh2.7 trillion borrowed in Kenyatta's first term and the Sh1 trillion borrowed by the late Mwai Kibaki in his last five-year term.

According to Business Daily, Analysts had previously predicted that the Ruto administration would cut down on borrowing significantly, following commitments to increase tax collections over the next five years. However, the rise in spending under the Bottom-Up economic plan, which aims to channel resources towards sectors that can significantly impact job and wealth creation, has prevented deeper cuts on the country's borrowing.

Kenya currently spends more than half of its tax revenue on servicing liabilities, which places the country at high risk of debt distress, according to the International Monetary Fund (IMF). The country's debt-to-GDP ratio was 62.3% as of October. The plan to ease the nation's debt burden comes as several emerging and frontier-market countries are seeking to review the terms of their obligations with lenders.

Dr. Ruto's budget for the fiscal year ending June 2027 is set to top Sh5.1 trillion, a significant increase from Kenyatta's last annual expenditure of Sh3.0 trillion. Treasury data shows that Kenya will cut borrowing for the next three financial years, including the Sh690 billion for the year to June 2024. However, borrowing is set to increase as Kenya heads towards the 2027 General Election, with a predicted increase to Sh844 billion in the year to June 2027, matching levels witnessed under the Kenyatta administration.

In February last year, Fitch said rising government debt levels and global interest rates were increasing the risk of credit rating downgrades in as many as 10 African countries, with Kenya, Ghana, Lesotho, Namibia, Rwanda, and Uganda most at risk.

Like other emerging economies, Kenya found it almost impossible to raise funds from international bond markets in 2022 due to a surge in yields. In June, the country was forced to cancel the planned issuance of a Eurobond and is now seeking alternative sources of funding.