Date of Publish: 22/06/2023

Number of Pages: 36
Publisher: East African Tax and Governance Network, Africa Centre for People Institutions and Society and Tax Justice Network Africa

RISKY BORROWING AND ECONOMIC JUSTICE: The Role of Private Creditors in Kenya’s Public Debt Problem

African countries, including Kenya, have shifted towards relying more on commercial loans instead of concessional loans due to limited access to concessional loans, less scrutiny from lenders, and fewer conditionalities attached to commercial loans. However, this shift has brought challenges and consequences with one major issue being the higher interest rates associated with commercial loans. This strains the country's finances, leading to increased debt servicing costs and the risk of refinancing. Consequently, many countries find themselves in debt distress, with limited fiscal space for crucial development projects and public services. Kenya's public debt has significantly increased from KES 1.6 trillion to KES 7.7 trillion between June 2012 and June 2021. Simultaneously, the accumulation of private debt has also increased, averaging 58% over the same period. The growing debt burden has adversely affected the government's ability to provide efficient public services. Further, the need to allocate substantial funds for debt repayment has prompted the implementation of regressive tax reforms, further burdening citizens and businesses. The recently signed Finance Bill 2023 for instance, introduces various tax reforms that are expected to raise the cost of basic goods and put additional financial strain on the citizens. Overall, the escalating debt levels in Kenya and other African nations pose significant challenges, restricting fiscal space and impending development projects. The consequences include heightened debt repayment obligations, regressive tax reforms and increased financial burdens on individuals and businesses.
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