The diversion of Kenya’s expenditure towards paying salaries, pensions, and high interests on loans is what is affecting the nation’s ability to focus on development, the World Bank has warned.
According to the World Bank Country Director Qimiao Fan, over 86 per cent of Kenya’s expenditure is used to finance the high wage bill, pensions, and loan interests, thus limiting the ability to focus on infrastructural growth and economic empowerment.
While speaking to NTV on Tuesday, July 15, Fan noted that this was further compounded by the country’s high level of public debt that stretched its financial coffers to the limit.
“These few alone take a large chunk of your expenditure, and that means that you have very little money left to build roads, invest in schools, and create more health care facilities,” Fao stated.
He pinpointed the observation as a structural issue, highlighting the structure of the economy as well as the fiscal policies in place as the two main culprits.
The result of spending such high amounts of expenditure on areas that are not related to development is a high debt-to-GDP ratio, which in turn can affect the sustainability of a nation’s economy.
The debt-to-GDP ratio is a financial metric that compares a country's total debt to its gross domestic product (GDP). It's calculated by dividing the country's total debt by its GDP.
A high debt-to-GDP ratio would put a country like Kenya at a high debt distress and potentially affect the growth of the economy. Currently, the public debt stands at Ksh11 trillion.
Of this, Ksh5 trillion comprises domestic debt, while Ksh5.09 trillion accounts for external debt. Domestic debt largely consists of Treasury Bills and Bonds, whereas external debt is owed to multilateral, bilateral, and commercial creditors.
Currently, Kenya’s debt level stands at 63 per cent of its GDP, way above the stipulated 55 per cent.
Fao noted that despite the debt level reducing from over 70 per cent, more work still needs to be done to ensure that the debt-to-GDP ratio reduces.
As such, the World Bank recommended reforms to strengthen fiscal sustainability equitably, while promoting inclusive jobs to revive the slowing economy and weak labour market.
Earlier this year, Treasury Cabinet Secretary John Mbadi, revealed that Kenya is on track to pay its Ksh11 trillion debt but stressed that challenges lie ahead as it seeks to repay its debt.
While speaking at the Dissemination of the 2025 Medium-Term Debt Management Strategy, Mbadi noted that the key challenge lay in the constrained maturity periods rather than the ability to repay debt.
This meant that while Kenya’s overall debt situation was stable and manageable, the main challenge lay in the short repayment timelines rather than the actual ability to repay the debt.
