Kenya’s national debt has risen significantly in recent months, increasing by almost KES100 billion. This comes as the nation’s economy grows at a rapid rate, in part because of loans taken out to improve infrastructure. Kenya’s situation reflects the tough decisions many developing countries face between short-term improvements and long-term sustainability. Meanwhile, some proposed solutions could support progress in both areas.

Origin of Kenya’s Debt

Kenya’s debt originates from two primary places: loans from other countries and loans from private organizations. One of its largest lenders is China, which provided significant financing for Kenya’s national railroad. As for private loans, Kenya has taken out substantial funding through Eurobonds, a type of international debt security. The numerous loans have compounded, trapping Kenya in a cycle of debt that is increasingly difficult to escape as interest accumulates.

Chatham House also noted that Kenya’s internal fund management issues have contributed to repayment challenges. The volume of loans taken out made long-term repayment more difficult despite short-term infrastructure gains. Regardless of the debt’s origins, Kenya’s high debt burden has led to further issues, particularly for its most vulnerable populations.

The Effect on Poverty

Given the large debt, the Kenyan government has prioritized interest repayments. This has caused public goods such as health care to receive less funding. Reduced investment in public works can lead to declines in quality of life. Additionally, many low-income households could face tax increases as the government seeks extra revenue. Afronomics Law reported that as Kenya’s national debt reached its ceiling in 2023, the increased burden could expand public debt, which is debt owed by citizens. Because of this, Kenya has been working to find ways to address debt while minimizing negative effects on its population.

Ongoing Efforts

Many organizations, both within and outside Kenya, have made recommendations for how the country should move forward. According to the World Bank, Kenya’s latest financial review suggested government restructuring to help address the debt challenge, primarily through stronger tax policy and improved efficiency in public spending. These steps would help strengthen the country’s gross domestic product (GDP) while reducing dependence on additional loans. The World Bank also noted that these measures could support job creation, helping to alleviate poverty. They stated that austerity measures are not recommended because they often come with severe costs to citizens.

Kenya’s government is also implementing its own strategies. Parliament recently passed an extensive debt mitigation plan to prevent further problems. The bill is not intended as a long-term solution but rather as a way to reduce damage caused by the existing debt. These strategies include increasing borrowing from domestic sources, which the national treasury determined would minimize external debt owed.

Looking Ahead

This decision between paying off loans and funding government programs does not have an easy answer. However, the examples above show that Kenya can take practical, actionable steps without worsening conditions for its citizens. Many other nations face similar debt challenges, and understanding how Kenya reached this point, and how it can move forward, could offer valuable insights for developing nations worldwide.

– Thaddeus Konieczny

Thaddeus is based in Williamston, MI, USA and focuses on Good News and Politics for The Borgen Project.

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