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The International Monetary Fund has raised Kenya’s risk of debt distress to high from moderate because of the impact of the coronavirus crisis, the IMF said in an assessment published on Tuesday.
The East African nation’s debt stood at 61.7% of gross domestic product at the end of last year, up from 50.2% at the end of 2015, the IMF said, driven up by budget deficits caused by large infrastructure projects, such as a new railway line.
“The risk of debt distress has moved to high from moderate due to the impact of the global COVID-19 crisis, which exacerbated existing vulnerabilities,” the fund said.
The debt load, however, still remained sustainable, the fund said in its debt sustainability analysis. Last week, it approved $739 million in emergency funding for Kenya to help it cope with the COVID-19 crisis.
The government has responded to the coronavirus crisis with a range of fiscal measures to try to limit the damage to the economy, including cuts to value-added and income taxes, which have worsened a number of indicators, the IMF said.
Among the worst-hit sectors in Kenya by the virus crisis are tourism and fresh produce exports, which are key sources of hard currency.
The present value of external debt to exports ratio and the external debt service to exports ratio have risen above the optimum threshold as a result, the IMF said.
“Kenya’s debt indicators will improve as exports rebound after the global shock dissipates,” the fund said.
There was little refinancing risk for the country’s outstanding Eurobonds once the global capital markets re-open to frontier issuers, the IMF said, citing the good reception that Kenya has received when it has tapped the markets in the past.
It called for sustained fiscal consolidation by the government in the medium term to lower the debt to a prudent level.