Despite threats from union groups to strike over unpaid salaries for March, Kenya’s President William Ruto says the nation would not borrow money to pay its civil personnel due to its rising debt.
On Tuesday, President Ruto attributed the salary delays to the nation’s massive public debt, some of which is due to mature this month.
According to him, the revenue body would use the taxes it had collected to pay the salaries.
This week, at least two worker umbrella organisations have sent out warnings to lay off employees who haven’t paid their dues.
The president’s chief economic adviser assured the local media on Monday that salaries would be paid by the end of the month while urging the administration to reduce wasteful spending of public money.
Kenya’s state debt is currently equal to 65 percent of its GDP.
Debt Analysis
As of the end of June 2020, Kenya’s total debt stock stood at 6.7 trillion Kenyan shillings ($62 billion), equivalent to about 66 percent of our total national wealth, as estimated by the gross domestic product (GDP). Since 2014, when Kenya floated its first sovereign bond and began its negotiations for a loan from the Exim Bank of China to finance the standard gauge railway (SGR), the size of the public debt has become a key issue of debate in the country. During this period, Kenya has also been able to easily raise funds from global bond markets and attain infrastructure funding from other countries as well.
Debt dynamics shifted in 2020-22, as Kenya turned to concessional multilateral borrowing from the IMF, the World Bank, and the African Development Bank, to help deal with the impact of the COVID–19 pandemic. Kenya also embarked on a 38‑month IMF programme in April 2021, running to mid-2024, supported by a US$2.34 billion funding envelope that is geared towards strengthening fiscal and debt management. The budget deficit declined from 7.8% of GDP in the fiscal year 2020/21 (July-June) to 7.3% of GDP in 2021/22 and is projected to ease to 5.8% of GDP in 2022/23, reducing borrowing needs. Debt owed to multilateral sources jumped from US$13.7bn in 2020, to US$17.9bn in 2022, whereas bilateral debt fell to US$9.8bn in 2022, and commercial debt dipped to US$10.1bn, despite a new US$1bn Eurobond in mid-2021 (paying a 6.3% coupon, the lowest rate to date).
The Current Reality
The nation requires more than $420 million every month to cover civil servant salaries and pensions.
This announcement comes just after the World Bank and the IMF independently warned that Sub-Saharan Africa was entering a new financial crisis and that many nations were at a high risk of experiencing debt hardship.