US Warns Kenya's Rising Debt Threatens Social Services, Economic Stability

The US has warned that Kenya's rising debt burden is undermining its ability to provide quality medical care and education to its citizens, shining the spotlight on expensive debt procured in the last decade partly from China, reports Business Daily Africa.

The Kenyan business daily quoted a newly published biennial report by the Office of the United States Trade Representative on the implementation of the African Growth and Opportunity Act, stating, "Kenya's ability to adequately fund its social services (which include education, healthcare, and housing) and poverty reduction programs is increasingly constrained by the cost of servicing its debt, partly due to the continued weakening of the local currency."

"As a result, Kenya continues to allocate more money for debt repayment than it does for development expenditures," the report quoted.

Kenya is facing violent protests due to its ongoing economic crisis. The East African nation's total debt stands at USD 80 billion, representing 68 per cent of its GDP, exceeding the World Bank and IMF's recommended maximum of 55 per cent.

Most of Kenya's debt is held by international bondholders, with China being the largest bilateral creditor, owed USD 5.7 billion.

The Kenyan business daily reported that 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," said Business Daily Africa in the report.

It mentioned that the latest disclosures from the Treasury, for instance, show debt repayment costs gobbled up an equivalent of three-quarters (75.47 per cent) of taxes collected in 11 months of the just-ended financial year.

Washington's concerns come on the back of the US and her Western allies increasing scrutiny of secretive clauses in loans that China has offered African countries.
The Kenyan business daily mentioned a study by AidData, a research laboratory at the College of William & Mary in the US, which found that the terms of Beijing's loan deals with developing countries were usually secretive and required borrowing nations such as Kenya to prioritize 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 office credit market."

The business daily said that 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 paralyzed Kenya's march towards an "industrializing, middle-income country that provides a high standard of living to all its citizens by 2030, in a clean and secure environment." (ANI)