Kenya’s Treasury has warned of an impending financial crunch, anticipating that the European Union (EU) may soon cut its aid following a similar decision by the United States through USAID.

Treasury Cabinet Secretary John Mbadi on Tuesday urged the country to brace itself for self-reliance, as it navigates the burden of heavy debt repayments amid dwindling foreign support.

“We will be left to look inward, and this is the worst period for Kenya. Some time back, we decided to take loans as a country, and these loans have now reached their peak,” Mbadi said while addressing attendees at the launch of the Anti-Corruption Strategic Guiding Framework for Kenya’s justice sector in Nairobi.

noted that the justice sector remains a key priority for the government in its fight against corruption and mismanagement of public funds, despite tightening fiscal constraints.

The Treasury chief acknowledged that Kenya’s financial position has become increasingly strained, with its fiscal space “having no legroom anymore,” especially as donor funding dries up.

Read More

  1. Kenya seeks new IMF deal as missed disbursement raises funding concerns
  2. Counties face shutdown as governors demand Sh116.4 billion from Treasury
  3. Kenya faces worsening food insecurity as 2.8 million people projected to be in crisis

“As we look at our priorities, I assure you that the justice sector will receive positive attention from the Treasury. However, things are not easy — our fiscal space has no legroom anymore, especially as foreign countries like the USA have stopped funding us, and we soon expect the EU to follow suit,” he said.

Kenya is currently grappling with an estimated Sh10 trillion in both external and domestic debt, with two-thirds of its annual revenue directed towards debt servicing.

A significant portion of this burden stems from past borrowing, including a costly Sh665 billion loan from China, taken between 2014 and 2019.

“As for our local debts, I won’t discuss them in detail, but we keep retiring them. Regarding external borrowing, we have Sh5.09 trillion in cheap-to-pay loans and an expensive Sh1.0 trillion loan, which includes a Sh665 billion Chinese loan taken between 2014 and 2019,” Mbadi explained.

The warning from the Treasury comes just days after Kenya and the International Monetary Fund (IMF) opted to forego the ninth and final review of their current lending programme, which was set to conclude next month.

The move left an estimated $800 million untapped from the program initiated in April 2021. Mbadi, however, dismissed speculation that Kenya withdrew due to failure in meeting IMF’s conditions.

Kenya has long been among the leading recipients of U.S. foreign aid in Sub-Saharan Africa, alongside Ethiopia, South Sudan, and Nigeria.

Much of this assistance has been directed towards health and humanitarian initiatives, especially in the battle against HIV/AIDS and malaria.

The EU has been a crucial source of development aid and humanitarian relief for Kenya, a relationship now seemingly on shaky ground.

With the anticipated reduction in donor support, Kenya faces a daunting economic landscape, one that may force difficult fiscal adjustments as it seeks to stabilise its finances.