The International Monetary Fund (IMF) on Thursday, January 25, revealed that developing countries like Kenya were using an average of 13 per cent of cash collected through taxes and other fees to pay foreign creditors.
IMF noted the exorbitant amounts being paid were due to foreign investors charging high interest rates and further increasing the pace of when the payments should be made.
In the past decade, the IMF noted that on average, the repayment share had risen to 13 per cent from 5 per cent.
Noteworthy, some African countries were paying as much as 25 per cent of the total taxes collected.
“This is one of the key indicators used in the framework for assessing debt sustainability that signals a country might be at risk of needing financial support from the IMF or of missing a debt payment,” the report indicated.
While the international financial institution did not give a breakdown of how each country was strained by debt repayment, it was reported that across the board, it was two and a half times higher than a decade earlier.
With Kenya, Ghana, Ethiopia and other African countries struggling with these payments, it was noted that the nations found it difficult to allocate cash for growth.
As such, Kenya and other African countries cannot develop the needed infrastructure to attract investors, create jobs or stabilise their struggling economies.
To tame the crippling debt, IMF proposed that Central Banks in developing economies continue revising interest rates upwards to tame inflation.
While President William Ruto’s administration has cited fuel subsidies instituted by his predecessor Uhuru Kenyatta as having been the main contributor to foreign debt, the IMF noted that subsidies had helped other African countries grow.
Angola, Ghana, Nigeria and Zambia were hailed for implementing fuel subsidies which gave room for development.
IMF however observed that some of the policies that Ruto has effected such as broadening the tax base and reducing tax exemptions have had a positive effect.
