Kenya at high risk of debt distress – IMF

The International Monetary Fund has raised Kenya’s risk of debt distress to high from moderate due to the impact of the coronavirus crisis, reporting that the East African country’s debt stands at 61.7% of gross domestic product as at the end of last year, up from 50.2% at the end of 2015.

This has been driven up by budget deficits caused by large infrastructural projects, such as a new railway line.

The debt load, however, remains sustainable, the fund states in its debt sustainability analysis. Last week, $739 million was approved in emergency funding for Kenya to help it cope with the COVID-19 crisis.

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The government has responded to the coronavirus crisis with a range of fiscal measures to try to limit the damage to the economy, including cuts to value-added and income taxes, which have worsened a number of indicators, the IMF says.

Among the worst-hit sectors in Kenya by the virus crisis, are tourism and fresh produce exports, which are key sources of hard currency.

“Kenya’s debt indicators will improve as exports rebound after the global shock dissipates,” the fund adds.

The fund calls for sustained fiscal consolidation by the government in the medium term to lower the debt to a prudent level.

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