Kenya to spend 40% of revenue on paying debt

Kenya is facing a challenging economic landscape as it grapples with a soaring public debt burden and banking sector woes. A recent treasury report reveals that the country will spend a staggering 40% of tax revenues to service its public debt, signaling a looming fiscal crisis. Meanwhile, mid-sized lender Consolidated Bank is in dire need of a strategic investor to plug a $25 million capital hole, raising concerns about its financial stability and competitiveness in the market. Eric Munywoki, Head of Research and Development at Sterling Capital, shed light on these pressing issues in a recent interview with CNBC Africa. The Kenyan government's decision to allocate a significant portion of its tax revenues to debt repayment has raised eyebrows among analysts and economists. With debt servicing eating into a substantial chunk of the budget, questions arise about the sustainability of the country's fiscal policies and the impact on taxpayers. In 2016, Kenya spent 32% of its budget on debt repayment, and the figure is expected to rise to $172 billion in 2017, adding more pressure on the already strained economy. Munywoki highlighted the challenges posed by the high debt burden, including the potential for rising interest rates, inflation, and exchange rate risks. The government's plan to increase foreign borrowing could exacerbate these risks, leading to further economic instability. Additionally, the merger of public lenders, including Consolidated Bank, with other financial institutions like Standard Chartered, is seen as a means to bolster the struggling banking sector. However, Consolidated Bank faces an uphill battle in attracting deposits and remaining competitive in the market. Despite efforts to enhance customer service and employ innovative strategies, the bank's deposit base declined in Q3, underscoring the need for a robust turnaround plan. Munywoki emphasized the importance of banks adopting new tactics and leveraging technology to attract customers and stay ahead of the competition. The challenges faced by Consolidated Bank reflect broader issues within Kenya's banking sector, where lenders are under pressure to adapt to changing market dynamics and regulatory requirements. As the country grapples with mounting debt and financial instability, the need for comprehensive fiscal reforms and prudent economic management becomes more critical. With the specter of debt servicing looming large, Kenya must navigate choppy waters to ensure sustainable growth and financial resilience. The government's commitment to addressing the debt crisis and supporting the banking sector will be crucial in steering the country towards economic stability and prosperity.