Kenya’s external debt is spiraling out of control, and the current trajectory suggests that it will soon reach a crisis point. The government, under President William Ruto’s leadership, seems to have an insatiable appetite for loans, disregarding the long-term implications for the country’s economy. As of 2024, Kenya’s national debt has surpassed $80 billion, with external debt accounting for a substantial portion. Despite this unsustainable borrowing, the government has continued to pursue reckless fiscal policies, ignoring both the warnings from financial experts and the alarming signals of the debt burden. The unchecked growth of Kenya's external debt poses grave risks for the nation’s financial stability and future development. Here’s why the debt is growing uncontrollably and what that means for Kenya’s economy.
Seven Reasons for Kenya’s Uncontrolled Debt Growth
1. Aggressive Borrowing for Infrastructure Projects
Kenya’s government has adopted an infrastructure-first approach, prioritizing mega projects like the Standard Gauge Railway (SGR), expansive road networks, and ambitious dams and energy projects. While these initiatives are often presented as solutions to the country’s infrastructural challenges, the reality is that they are funded overwhelmingly through foreign loans. The SGR alone, costing billions of dollars, is a glaring example of this reckless borrowing. While the government touts the SGR as a success, it has failed to generate the economic returns initially promised, leaving taxpayers on the hook for the billions owed to China and other lenders. The government’s willingness to borrow indiscriminately for such projects, without a clear plan for repaying these debts, shows a shocking level of fiscal irresponsibility. These infrastructure projects may offer long-term benefits, but their immediate financial burden on the nation is unsustainable.
2. Rising Domestic and Global Interest Rates
In the wake of global economic shifts and tightening monetary policies, interest rates on loans—both local and foreign—have increased. With inflation rising globally, Kenya has not been shielded from the effects of higher global interest rates. The government has continued to borrow even as the cost of debt climbs, disregarding the fact that repaying these loans will become significantly more expensive. The Kenyan Treasury now finds itself paying more in interest than ever before, further deepening the country’s financial hole. As the cost of borrowing rises, Kenya’s ability to service its external debt without straining public services becomes increasingly difficult. The government’s failure to control borrowing in the face of rising interest rates is yet another sign of its fiscal negligence.
3. Debt Restructuring and Refinancing
To mask the severity of the growing debt, the Kenyan government has engaged in frequent debt restructuring and refinancing, essentially rolling over old debt with new loans. While this may seem like a temporary solution, it does nothing to address the root cause of the problem: Kenya is living beyond its means. Restructuring loans only pushes the burden further into the future and compounds the interest payments. In some cases, Kenya has had to refinance its debt at even higher rates, ensuring that future generations will inherit an even larger debt burden. This constant refinancing strategy is symptomatic of a government unwilling to take the necessary steps to rein in its borrowing and adopt a more sustainable fiscal policy.
4. Increased Borrowing from Non-Paris Club Lenders
A significant portion of Kenya’s external debt is owed to non-Paris Club lenders, particularly China. The shift towards Chinese loans began during the tenure of former President Uhuru Kenyatta and has continued under President William Ruto. While these loans have funded key infrastructure projects, they often come with much higher interest rates and less favorable repayment terms than loans from traditional creditors. Chinese loans, for example, are typically denominated in foreign currencies, exposing Kenya to currency exchange risks. The pressure from these loans has only increased as the value of the Kenyan shilling fluctuates, further deepening the debt problem. The government’s eagerness to borrow from less transparent and more expensive lenders raises serious questions about its commitment to managing public finances responsibly.
5. Government’s Appetite for Short-Term Loans
Kenya’s government has increasingly relied on short-term debt instruments, such as treasury bills and commercial loans, to finance its operations. These instruments are often seen as easier to obtain in the short run, but they come with significant risks. Treasury bills and short-term loans typically carry higher interest rates and shorter repayment periods. This creates a vicious cycle where the government constantly needs to roll over its short-term debt, increasing its overall debt load. Instead of focusing on long-term, sustainable borrowing strategies, the government continues to chase after quick fixes, accumulating more debt that it cannot easily pay off. This short-sighted approach not only threatens Kenya’s financial stability but also undermines investor confidence in the country’s ability to manage its economy effectively.
6. Corruption and Mismanagement
One of the most damaging factors contributing to Kenya’s debt crisis is widespread corruption and mismanagement of public funds. Public procurement processes are often mired in corruption, with billions of shillings lost to inflated contracts, kickbacks, and theft. This corruption inflates the cost of projects, making loans taken to fund these projects even more burdensome. Worse still, funds that should be directed toward development are often siphoned off, leaving taxpayers to foot the bill for incomplete or poorly executed projects. This lack of accountability has led to mounting debt with little in return for the Kenyan people. The government’s failure to address the root causes of corruption and mismanagement exacerbates the debt crisis and ensures that funds meant to benefit the public are squandered.
7. Political Promises and Electoral Spending
As the country approaches elections, governments tend to ramp up spending in an effort to secure votes. Under President Ruto’s leadership, this pattern has only intensified. The government has frequently resorted to borrowing to fund politically motivated projects, welfare schemes, and subsidies aimed at winning the support of the electorate. While these spending initiatives may provide temporary relief to certain segments of the population, they do little to address Kenya’s underlying structural issues. Instead, they increase the country’s debt burden, leaving the next administration to deal with the consequences. This short-term political calculus, rather than a focus on long-term fiscal sustainability, is one of the key drivers of Kenya’s escalating debt.
The Economic Impact of Growing External Debt
The unchecked growth of Kenya’s external debt is already taking a toll on the economy, with consequences that are likely to worsen over time.
- Increased Debt Servicing Costs The government is spending more on debt servicing than ever before, with a significant portion of the national budget now allocated to paying off loans. In fact, nearly 40% of Kenya’s annual budget is dedicated to servicing debt. This heavy reliance on foreign loans has squeezed vital government spending on health, education, and other critical sectors, leaving the country unable to invest in its future.
- Depreciation of the Kenyan Shilling As Kenya’s external debt continues to rise, there is increasing pressure on the Kenyan shilling. A depreciating currency raises the cost of servicing foreign loans, further exacerbating the debt crisis. This depreciation also makes imports more expensive, driving up the cost of living for ordinary Kenyans and adding to inflationary pressures.
- Reduced Creditworthiness Kenya’s rising debt has led to several downgrades in its credit rating, making it more difficult and expensive for the country to borrow in the future. The reduced creditworthiness will only serve to worsen the debt situation, creating an even greater financial burden for future generations.
- Private Sector Crowding Out The government’s massive borrowing spree is crowding out the private sector, with businesses finding it more difficult to access credit. The government’s demand for credit drives up interest rates, making it harder for local businesses to finance expansion and create jobs. This undermines the potential for private sector-led growth, leaving the country reliant on government spending to drive economic activity.
- Debt Overhang and Economic Growth The growing debt burden is choking the country’s economic potential. With debt repayments consuming such a large portion of the national budget, there is little left to invest in the industries, education, and innovation needed to foster sustainable economic growth. Instead of diversifying the economy, the country is sinking deeper into debt, with little hope of breaking the cycle.
The Role of President William Ruto’s Administration
Under President William Ruto, Kenya’s debt situation has only worsened. While the government has claimed that borrowing is necessary for development, the reality is that this excessive borrowing is unsustainable and irresponsible. Ruto’s administration has failed to take the tough measures needed to rein in spending and curb the growth of external debt. Instead, it has continued to borrow with little regard for the long-term consequences. The government's failure to tackle corruption, manage resources effectively, and reduce reliance on foreign loans has exacerbated the debt crisis.
Conclusion: A Call for Urgent Reform
The time to act is now. Kenya cannot continue down this path of reckless borrowing. The government must take immediate steps to implement fiscal discipline, reduce corruption, and prioritize internal resource mobilization. Without a drastic shift in policy, the nation’s debt burden will continue to spiral out of control, with devastating consequences for future generations. The Kenyan people deserve better than to be saddled with an unsustainable debt load that they had no hand in creating. The government must change course before it’s too late.
Kenya's Uncontrolled External Debt: A Looming Crisis for the Nation's Economy