Policy Brief No. 31 of 2023/2024 on Public Debt in Kenya: Trends and Sustainability

Abstract

Before 2013/14, public debt was on a declining trajectory. However, the intensified spending on public infrastructure, implementation of the devolved system of governance, persistent fiscal deficits, and multiple economic shocks have greatly compounded the debt situation in the country. Consequently, the stock of public debt and its sustainability remains a fundamental public policy concern, not only to the government but also to the private sector and the entire citizenry. This is because of rapidly increasing debt accumulation post-2010 and the increasing debt service. In addition, the increasing commercial component of external debt and bilateral debt and the dominance of US dollar-based loans observed recently have intensified public concerns about the risk exposure of public debt. The country is rated as a medium performer in terms of Debt Carrying Capacity (DCC) with a high risk of debt distress (Medium Term Debt Strategy - MPTDS, 2023). The high risk of debt is largely because of the economic effects of the COVID-19 pandemic contributing to a slowdown of economic growth and, recently, the weakening of the shilling against the US dollar.