2024 Medium-Term Debt Management Strategy analysis
The Medium-Term Debt Management Strategy (MTDS) is an annual policy document written by the National Treasury to guide government borrowing and debt management. The 2024 document prepared in January 2024 has figures up to June 2023, while the Second Quarterly Economic and Budget Review (QEBR) for the period ending December 2023 is more up-to-date. The table below outlines Kenya’s current debt position. Although the MTDS commences with an analysis of the stock of public debt and publicly guaranteed debt, our analysis in this context relies on the more recent figures from the 2nd QEBR for accuracy.
Stock of Public Debt
| Category | Amount in Kshs | Amount in Dollars | Explanation |
| Gross public debt | KSh. 11,139.7 billion | The gross public debt comprised 54.7 percent external debt and 45.3 percent domestic debt. The increase in the public debt is attributed to external loan disbursements; exchange rate fluctuations; and uptake of domestic debt during the period. | |
| Net public debt | KSh. 10,675.4 billion | ||
| Net domestic debt | KSh. 4,585.8 billion | ||
| External public debt stock | US$. 38,920.6 million | ||
| 50.3% Multilateral Debt | |||
| 26.1% Commercial Debt | |||
| 23.4% Bilateral Debt | |||
| 0.3% Suppliers Credit | |||
| External Debt Service | KSh. 239.6 billion. | This comprised of KSh. 134.6 billion (56.2 percent) principal and KSh. 105.0 billion (43.8 percent) interest |
Source: Second Quarterly Economic and Budget Review, February 2024
The MTDS proceeds to assess the expenses and potential hazards linked to the debt, particularly in light of the 2022 MTDS implementation aimed at reducing debt service costs and refinancing risks. However, it is revealed that these objectives were not achieved. Instead, both debt service costs and refinancing risks increased due to the Kenyan shilling depreciating against major currencies and a surge in interest rates in domestic markets. The escalation in refinancing risk is attributed to the issuance of short-term instruments, reflecting investor preference for such debt instruments.
The Average to Maturity (ATM) of the entire debt portfolio has been decreasing, illustrated by the reduction in the maturity of the existing public debt portfolio from 8.8 years in December 2022 to 8.5 in June 2023. Additionally, the Average Time to Refixing (ATR) of the total public debt (external and domestic) has also diminished, posing a risk as interest rates may swiftly shift to higher rates, resulting in elevated debt service costs. These risks are emphasized in the document.
Kenya’s Debt Sustainability has deteriorated over the past decade. In 2017, the Debt Carrying Capacity was classified as strong, but it is currently labelled as medium. Similarly, the risk of debt distress, which was low in 2017, is now categorised as high. A summary of various indicators is presented in the table below.
Summary of the Kenya 2024 Medium Term Debt Management Strategy
| Category | Category | Indicator | What this Means | What can be done | |
|---|---|---|---|---|---|
| Debt Sustainability Analysis (DSA)
Kenya’s debt burden indicators are expected to improve in the medium term due to the fiscal consolidation program. The government will continue to optimise the use of concessional funding and lengthen the maturity profile of public debt. Annual borrowing limits (fiscal deficits) must be reduced to limit the rate of accumulation of public debt. |
Kenya debt carrying capacity (DCC) | Medium | Has remained medium since March 2021
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| Composite Indicator | 3.01 | The CI captures the impact of various factors through a weighted average of real GDP growth, remittances, international reserves and global growth. The December 2023 CI score was higher than the June 2023 score (2.98) due to a stronger projected path of import coverage of reserves | |||
| Risk of Debt Distress | High | Moved from moderate to high in 2019 | |||
| External Debt Sustainability Analysis
|
PV of PPG external-debt-to-GDP ratio | Below 40% indicative threshold | Expected to decline to 31.7 percent in 2023 to about 28.3% in 2028 due to fiscal consolidation and borrowing mix leaning towards concessional borrowing. | ||
| PPG of external debt-to-exports (solvency indicator) | 240
Above threshold (180 percent) |
Ratio expected to decline gradually as the exports recover | |||
| Debt service-to-exports ratio
(liquidity indicator) |
21
Exceeds threshold (15%) |
Exceeds threshold in the medium term due to Eurobond repayments in 2024 and 2028 and rollover of bank loans. Indicated increased vulnerability of public debt to export and financing shocks | Need to broaden the export base and continue contracting loans with amortising repayment terms and lengthening of the maturity profile of domestic debt through the issuance of longer-dated bonds. | ||
| Debt service to revenue ratio (liquidity ratio) | 23
Exceeds threshold (18%) |
Anticipated rollovers of maturing commercial financing. | |||
| Total Public Debt Sustainability Analysis | PV of Debt to GDP ratio | Projected to remain above 55% benchmark until 2029 | High-risk signal. Projected to decline with the multi-year growth-friendly fiscal consolidation programme supported by enhanced revenue collection and curtailed overall spending. |
Source: MTDS 2024, published January 2024
The MTDS further explores diverse Macro Economic Assumptions and concludes by addressing key risks, incorporating a scenario analysis featuring alternative strategies for debt management. Additionally, it advocates for reforms in public debt management, suggesting a transition from a debt limit to a debt anchor, the diversification of borrowing sources, and the operationalisation of a sinking fund, among other measures.
In summary, effective fiscal discipline and political commitment to fiscal restraint could enable the long-term management and reduction of the high public debt burden to the boundaries set by legislation, but that remains to be seen.