The US has warned that Kenya’s rising debt burden is undermining its ability to provide quality medical care and education to its services, shining the spotlight on expensive debt procured in the last decade partly from China.
Washington said elevated debt servicing costs are taking up a larger chunk of taxes, leaving little for development projects in social services and spurring the creation of decent jobs for the rising number of skilled youthful population.
“Kenya’s ability to adequately fund its social services [which include education, healthcare, and housing] and poverty reduction programmes is increasingly constrained by the cost of servicing its debt, partly due to the continued weakening of the local currency,” Office of the United States Trade Representative said in a newly published biennial report on the implementation of the African Growth and Opportunity Act.
“As a result, Kenya continues to allocate more money for debt repayment than it does for development expenditures.”
The ballooning debt servicing expenses have in recent years overtaken expenditures on salaries and wages, administration, operation, and maintenance of public offices for the national government. This underlines the impact of commercial and semi-concessional loans that Kenya has contracted in the last decade to put up much-needed roads, bridges, power plants, and a modern railway line.
Latest disclosures from the Treasury, for instance, show debt repayment costs gobbled up an equivalent of three-quarters (75.47 percent) of taxes collected in 11 months of the just-ended financial year.
This is after the Treasury spent nearly Sh1.46 trillion on repaying interest and principal sums of Kenya’s domestic and foreign debt in a period when taxes amounted to Sh1.93 trillion.
The expenditure on debts was Sh342.98 billion more than Sh1.11 trillion, which went into paying salaries and allowances as well as administration, operation, and maintenance of offices for the government.
The increased expenditure on debt repayments has hit the hardest development projects, which received Sh261.15 billion directly, an equivalent of 10.04 percent of the total Sh2.6 trillion expenditure in the 11 months ended June 2024.
The concerns by Washington have come on the back of the US and her Western allies increasing scrutiny on secretive clauses in loans that China has offered African countries.
A study by AidData, a research laboratory at the College of William & Mary in the US, found that the terms of Beijing’s loan deals with developing countries were usually secretive and required borrowing nations such as Kenya to prioritise repayment to Chinese state-owned lenders ahead of other creditors.
The dataset, based on an analysis of loan agreements between 2000 and 2019, suggested the Chinese deals have clauses for “more elaborate repayment safeguards” than its “peers in the official credit market”.
The terms further “give Chinese lenders an advantage over other creditors”, the findings of the study suggested.
Kenya paid China Sh152.69 billion for interest and principal sums falling due in the financial year ended June 2024, 42.14 percent more than Sh107.42 billion in the year that ended June 2023.
The US says increasing debt obligations, corruption, and the lingering effects of the pandemic on household and company earnings have nearly paralysed Kenya’s march towards an “industrialising, middle-income country that provides a high standard of living to all its citizens by 2030, in a clean and secure environment”.
“The fourth Medium-Term Plan 2023-2027 provides an outline to implement Vision 2030 by instituting key legal and institutional requirements. However, the GOK will likely struggle to achieve its Vision 2030 goals on time due to insufficient funding, implementation delays, lingering effects of the Covid -19 pandemic, and corruption,” said the USTR office, equivalent to the Ministry of Trade, said in the Agoa report.