World Bank Flags Kenya’s High Borrowing as Private Sector Credit Shrinks

DAVOS, Switzerland – The World Bank has raised concerns over Kenya’s mounting domestic borrowing, warning it is stifling private sector growth and economic recovery.

In its Kenya Economic Update 2024, the global lender revealed that credit to the private sector contracted sharply from 5% in August 2023 to -0.5% a year later, reflecting a challenging environment for businesses.

The report attributes the drop in private sector credit to the government’s aggressive borrowing spree and persistently high interest rates.

This has effectively “crowded out” private enterprises—particularly small and medium-sized businesses—that depend on affordable loans to sustain operations and fuel growth.

“High government domestic borrowing coupled with high real interest rates is crowding out the private sector as sectors experience weaker credit growth,” the report states.

The impact is already evident across key economic sectors. Agricultural credit growth dropped from 10% last year to just 5% in August 2024, while manufacturing saw a sharper decline, plummeting from 15% in January to -14% by August.

These credit constraints, coupled with economic disruptions such as anti-government protests, flooding, and fiscal instability, prompted the World Bank to revise Kenya’s 2024 economic growth forecast downward from 5% to 4.7%.

While the World Bank acknowledged a slight improvement in Kenya’s debt-to-GDP ratio—thanks in part to a stronger shilling that reduced the value of external debt in local currency—the overall debt burden remains a pressing concern.

The report highlights rising debt-servicing costs, uncollected revenue targets, and accumulating pending bills as significant fiscal vulnerabilities.

Kenya’s central bank has also struggled to tame high lending rates, with commercial banks largely ignoring calls to ease borrowing costs.

This leaves businesses and consumers grappling with expensive credit despite a need for stimulus.

The report underscores the need for urgent reforms to balance fiscal policy, manage borrowing, and ease private sector credit constraints.

With the economy heavily reliant on small and medium enterprises, failure to address these challenges could further dampen Kenya’s recovery trajectory.