Kenya's debt dilemma: Unpacking the challenges & possible solutions

Kenya is currently facing a monumental challenge with its public debt burden, a delicate balancing act between potential economic growth and the looming threat of financial instability. As the country nears a critical juncture with its Eurobond redemption deadline in 2024, concerns are mounting over its ability to navigate this treacherous path. The recent departure of Haron Sirima, the director general for public debt management at the Treasury, has only added to the anxiety surrounding Kenya's debt crisis. In a recent interview with CNBC AFRICA, George Munga Amollo, the Managing Partner at AMG Consulting Group in Nairobi, shed light on the gravity of the situation and possible solutions. Here are the key points discussed in the interview: The Impact of Eurobond Debt Repayment on the Kenyan Shilling: One of the major consequences of the tight race to meet the June 2024 deadline for Eurobond debt repayment is the significant impact it has had on the Kenyan shilling. The depreciation of the shilling against the US dollar has been staggering, with a 21.4 percent drop in value year to date. This depreciation has not only made imports more expensive but has also inflated the country's external debt burden, as a large portion of Kenya's debts are dollar-denominated. The constant borrowing and lending cycle: Kenya's borrowing has skyrocketed in recent years, with total debt reaching 10.2 trillion shillings by the end of last year. A concerning 54.3 percent of this debt is in the form of external debts, most of which are denominated in dollars. This dependency on foreign debt has heightened the country's vulnerability to currency fluctuations, as any depreciation in the shilling leads to a corresponding increase in the cost of repaying these dollar-dominated debts. The Effectiveness of Fiscal Policy and Possible Solutions: The effectiveness of Kenya's fiscal policies has come under scrutiny, particularly in light of the sharp depreciation of the shilling and the high inflation rates witnessed in recent quarters. George Munga highlighted the need for austerity measures to address these economic challenges. He stressed the importance of import substitution and export promotion as key strategies to alleviate the pressure on the economy. By reducing unnecessary imports and focusing on essential commodities, Kenya can lower its demand for dollars while boosting exports to increase foreign exchange earnings. In conclusion, the interview underscored the urgent need for a coordinated effort between the government, the Treasury, and the Central Bank to tackle Kenya's debt crisis. With prudent financial management, targeted policy interventions, and a focus on enhancing revenue streams, Kenya can chart a course towards sustainable economic growth and stability. As George Munga aptly summarized, 'the government must address critical issues affecting the economy through austerity measures, import substitution, and export promotion to mitigate the challenges posed by the country's staggering debt levels.'