Kenya: Rebased National accounts to positively impact sovereign debt metrics (Summary)

Kenya’s national accounts were rebased reflecting a new benchmark year of 2016, from 2009 previously, in a bid to use data that was more representative of the economy in terms of size and structure. The change in base year aligns with the United Nations Statistical Commission’s recommendations to rebase national accounts every five years. As a result of the rebasing, GDP was revised higher and was estimated at KES 10.75 trillion in 2020.

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The impact of the rebasing primarily affects the development of macroeconomic indicators such a public debt, fiscal deficit and current account data as a percentage of GDP in a positive fashion. For the government, a higher GDP base should overall improve its debt metrics providing more room for debt accumulation.

Earlier, public debt-to-GDP was estimated at nearly 70% at the end of 2020, and was expected to sustain a level above this threshold for the next three-years thereby placing the sovereign at an overall high risk of debt distress (IMF). However, with the rebasing, the government now seems at a more favorable debt position with the ratio estimated at around 68% in 2020.

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While it may appear that the government can comfortably accumulate additional debt, it is important to note that issues around debt servicing may warrant caution. To be sure, tax revenues and export receipts, all of which are avenues to repay debt, remain volatile more so in light of the pandemic.

Even then, the spending burden, as the government seeks to support GDP, is likely to sustain elevated debt appetite. However, the government will likely seek avenues to accumulate debt at a reduced cost over longer durations. This should overall sustain the upward pressure on interest rates though healthy demand should curtail a sharp upswing in rates for now.

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