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NEWS & CURRENT AFFAIRS

The Nairobian

'Lost decade' of borrowing offers chance to recalibrate economy

Opinion

By James Muraguri | Mar 02, 2025

**Kenya continues to breach the IMF’s debt sustainability thresholds, with debt service now consuming a significant portion of revenue.** [Courtesy].

For the longest time, Kenya’s economic growth prospects have been characterised by fiscal deficits, sluggish growth, and debt vulnerabilities that have since left the nation grappling with tough choices.

Over the last decade, the government embarked on enormous borrowing to finance “ambitious” infrastructure projects. The challenges faced by the country in servicing debt a decade after expose how the debt-financed projects have failed to yield expected returns.

The numbers paint a grim picture: real per capita public spending remains stagnant, struggling to 2018 levels, while revenue collection efforts continue to fall short.

A look beyond the statistics, the reality of Kenya’s “lost decade” is felt in hospitals running short on supplies, university students failing to get timely disbursement from the Higher Education Loans Board, delayed disbursement of equitable share to county governments, salaried workers and small businesses burdened by rising taxes, and in the silent despair of young graduates unable to secure stable employment.

While the government has championed fiscal consolidation, the unintended consequence has been a steady decline, particularly in critical sectors such as health and education. In 2024, Kenya’s GDP growth slipped to 4.6 per cent, well below the five per cent average of previous years.

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Investment and exports, key drivers of sustainable economic expansion, have failed to keep pace with GDP growth. Compared to Ghana, a country with a similar GDP per capita but has managed to reduce poverty to 25 per cent, Kenya’s poverty rate remains stubbornly high at 36 per cent. The contrast shows how growth alone does not guarantee shared prosperity.

Achilles’ heel

The informal sector, which employs most Kenyans, remains a trap of low wages and job insecurity. Unlike Ghana, where a more balanced labour market ensures better earnings across different sectors, Kenya’s economy remains highly polarised—well-paying jobs concentrated in a few formal industries while millions toil in subsistence agriculture and casual labor.

Debt has become Kenya’s Achilles’ heel. The recently released Macro-Fiscal Analytic Snapshot notes that while the refinancing of a $2 billion Eurobond in early 2024 may have averted immediate default, Kenya continues to breach the IMF’s debt sustainability thresholds, with debt service now consuming a significant portion of revenue.

Out of every Sh100 collected, Sh67 is used to repay debt leaving meagre resources to transfer to the counties and finance recurrent expenditure. Public schools are on the receiving end with endless delays in the disbursement of capitation for learners.

For the ordinary Kenyan, this means fewer resources for social programmes, persistent unpredictability in county disbursements, and an economy that struggles to invest in long-term growth. Owing to such challenges, the urgency for prudent borrowing cannot be overstated. Any further shocks to the economy and revenue generation have the potential to push the country into deeper debt distress.

As a country, we need to pick lessons from neighbours such as Rwanda which has managed debt more sustainably by linking borrowing to clear productivity goals. Kenya must follow suit by ensuring that every shilling borrowed translates into tangible economic returns.

Investing in infrastructure is necessary, but without complementary reforms in governance and efficiency, roads and bridges alone will not drive prosperity.

Kenya’s Open Budget Index score of 55 per cent falls short of the 61 per cent threshold needed for sufficient transparency. Delayed audit reports, opaque fund disbursements, and underwhelming accountability mechanisms continue to undermine trust in public institutions.

- The writer is the CEO, Institute of Public Finance