The US has recently warned Kenya about its rising debt burden, which is hindering the country’s ability to provide quality medical care and education to its citizens. A biennial report by the Office of the United States Trade Representative highlighted that Kenya’s social services, including education, healthcare, and housing, are being constrained by the cost of servicing its debt. Kenya’s debt now stands at USD 80 billion, representing 68 percent of its GDP, exceeding the recommended maximum debt limit of 55 percent by the World Bank and IMF.
Most of Kenya’s debt is held by international bondholders, with China being the largest bilateral creditor, owed USD 5.7 billion. The country has been relying on commercial and semi-concessional loans over the past decade to fund infrastructure projects like roads, bridges, power plants, and a modern railway line. However, debt servicing expenses have surpassed expenditures on essential government functions like salaries, wages, administration, and maintenance.
Debt repayment has been eating up a significant portion of the taxes collected, with the latest Treasury disclosures showing that 75.47 percent of tax revenue was used for debt repayment in just 11 months of the previous financial year. Meanwhile, the US and its Western allies have been closely scrutinizing the terms of Chinese loans to African countries, raising concerns about the secretive clauses that prioritize repayment to Chinese state-owned lenders over other creditors.
A study by AidData revealed that Chinese loan deals with developing countries like Kenya often come with more elaborate repayment safeguards, making it challenging for these nations to prioritize other financial obligations. In the financial year ending June 2024, Kenya paid China Sh152.69 billion for interest and principal sums, showing a 42.14 percent increase from the previous year. As a result of increasing debt obligations, corruption, and the economic impacts of the pandemic, Kenya’s progress towards becoming an industrialized, middle-income country by 2030 is at risk.
The US has raised concerns about Kenya’s debt situation, emphasizing the need for the country to address its rising debt burden and prioritize investments in social services and poverty reduction programs. With debt repayment costs surpassing essential government expenditures, Kenya is facing challenges in achieving its development goals. As international creditors like China hold a significant portion of Kenya’s debt, transparency and accountability in loan agreements have become crucial to ensure sustainable economic growth and development in the country.
