AfDB warns of Kenya’s rising debt distress

Kenya is staring at debt distress due to slow revenue growth that has pushed the current account deficit to almost 7 percent this year. 

The African Development Bank is warning that rising unemployment and the impact of COVID-19 on business is expected to push more people into poverty. 

The bank further says East Africa’s economic growth for 2020 is projected at 1.2 percent in the baseline scenario and 0.2 percent in the worst-case scenario.

The African Development Bank annual economic report lays bare the dire economic situation facing the east African region where all the six countries are at a serious risk of debt distress. 

The region’s fiscal deficit is driven mainly by huge infrastructural expenditure and low tax revenue collection. 

The average fiscal deficit for the region is estimated at 4.9 percent of GDP in 2019 and will worsen to around 7 percent in 2020.

Kenya’s fiscal deficit has worsened to around 6 percent in 2019, and it is expected to widen to nine per cent, the largest in four years, as the government implements revenue-cutting measures to shield citizens from the negative impacts of coronavirus.

The risk of debt distress has increased in Ethiopia, Eritrea, Kenya, South Sudan and Sudan.

The region’s current account deficit was projected to slightly deteriorate to 6 percent of GDP in 2020 from 5.9 percent in 2019; this has also been revised in the wake of COVID-19 to 7.0 percent of GDP.

East Africa’s GDP growth was projected to be 5.1 percent in 2020 ID-19)- midway between the 5 percent base in 2019 and 5.2 percent peak in 2018, and remaining the fastest growing region in Africa.

All East African countries were projected to positively contribute to the growth, except for Sudan whose economy was projected to slow by 1.6 percent in 2020 due to conflict.

Consequently, the region’s 2020 growth is projected at 1.2 percent in the baseline scenario and 0.2 percent in the worst-case scenario.