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The United Nation is worried that countries like Kenya might experience economic stagnation due to high debt obligations.
A report by the United Nations Conference on Trade and Development (UNCTAD) shows that the total global public debt now estimated at $92 trillion, escalated in poor nations.
Dubbed ‘World of Debt’ the report released last week shows that the global public debt has increased more than fivefold since 2000, outpacing global economic growth, which tripled over the same time.
The International Monetary Fund (IMF) expects the global output growth to fall from 3.4 per cent last year to 2.8 per cent, before rising to three per cent in 2024.
According to the report, developing countries owe almost 30 per cent of the total world debt of which roughly 70 per cent is attributable to China, India and Brazil.
The United Nations agency says that debt has become a substantial burden for developing countries due to limited access to financing, rising borrowing costs, currency devaluations and sluggish growth.
“These factors compromise their ability to react to emergencies, tackle climate change and invest in their people and their future,” the report reads.
It says that countries are facing the impossible choice of servicing their debt or serving their people, with 3.3 billion people living in countries that spend more on interest payments than on education or health.
“We are living in a world where debt disrupts prosperity for people and the planet,” the report reads in part.
Kenya’s public debt has been on the rise, increasing by a 10-year CAGR of 18.2 per cent to Sh9.6 trillion in April 2023, from Sh1.6 trillion in May 2012 primarily driven by the government’s huge borrowing to fund infrastructural projects and fund the budget.
The country’s rate of budget shortfall has averaged 7.4 per cent of GDP over the last 10 years coupled with the increasing debt servicing costs especially for US Dollar denominated commercial loans given the shilling’s continuous depreciation.
Public debt now accounts for close to 74 per cent of the country’s GDP, with the government spending a substantial amount of its annual budget to service debt.
The UN report calls for equality in debt servicing, lamenting that African countries borrow on average at rates that are four times higher than those of the United States and even eight times higher than those of Germany.
“High borrowing costs make it difficult for developing countries to fund important investments, which in turn further undermines debt sustainability and progress towards sustainable development,” the report says.
According to UNCTAD, developing countries’ debt trends have caused a rapid increase in total public interest payments relative to the size of their economies and government revenues.
Currently, half of developing countries devote more than 1.5 per cent of their GDP and 6.9 per cent of their government revenues to interest payments, a sharp increase over the last decade.
The rise of interest payments is a widespread problem. The number of countries where interest spending represents 10 per cent or more of public revenues increased from 29 in 2010 to 55 in 2020.
Furthermore, at least 19 developing countries including Kenya are spending more on interest than on education and 45 are spending more on interest than on health.
In the past ten years, the portion of external public debt owed to private creditors has risen across all regions, accounting for 62 per cent of developing countries’ total external public debt in 2021.
The agency says that the increasing share of public debt owed to private creditors presents two challenges.
“First, borrowing from private sources is more expensive than concessional financing from multilateral and bilateral sources. Second, the growing complexity of the creditor base makes it more difficult to successfully complete a debt restructuring when needed,” UNCTAD says BY THE STAR