CS Mbadi warns of worst period for Kenya's fiscal outlook, anticipates EU funding cuts

In the wake of the United States' recent halting of all foreign assistance through USAID, of which Kenya was a beneficiary, Treasury Cabinet Secretary John Mbadi says they anticipate a similar move from the European Union (EU).

Mbadi said on Tuesday that Kenya is forced to “look inward” moving forward and not rely on aid, even as it struggles to get its finances back on track after heavy domestic and external borrowing, which has resulted in high debt-servicing costs.

Speaking at the launch of the Anti-Corruption Strategic Guiding Framework for Kenya’s justice sector in Nairobi, the Treasury CS said justice is one of the government’s top priorities to help it tame corruption and loss of public funds.

“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,” Mbadi said.

“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.”

Kenya is faced with about Ksh.10 trillion in external and domestic debt, and two-thirds of the country's annual revenue goes to debt servicing.

Last week, the country and the International Monetary Fund (IMF) agreed to ditch the ninth and final review of its current lending programme, which was set to expire next month.

Some $800 million was still left from the programme that started in April 2021 but Mbadi has denied that Kenya abandoned the review after failing to meet the required targets.

“As for our local debts, I won’t discuss them in detail, but we keep retiring them. Regarding external borrowing, we have Ksh 5.09 trillion in cheap-to-pay loans and an expensive Ksh 1.0 trillion loan, which includes a Ksh 665 billion Chinese loan taken between 2014 and 2019,” the minister said on Tuesday.

Kenya was among the biggest recipients of U.S. aid in the Sub-Saharan Africa region, alongside Ethiopia, South Sudan and Nigeria.

Health and humanitarian assistance sectors accounted for the highest aid disbursements for the four countries, most of which went to HIV/AIDS and Malaria response.

At the same time, the EU is also one of Kenya’s key sources of humanitarian aid and development assistance.