LONDON - Kenya's mounting debt strains mean it is "walking a tightrope" to avoid a crisis, U.S. investment bank JPMorgan said in a note on Tuesday.
Although it has been of one Africa's fastest-growing economies, Kenya's heavy debt burden and weak currency has raised concerns about the sustainability of its finances.
The government needs to repay or refinance a $2 billion international bond next June, but like many developing world countries with weak credit ratings, the East African country is effectively locked out of capital markets at the moment.
JPMorgan's analysts said this meant Kenya was facing a balance of payments gap of $1.1bn and $2.2bn in 2023 and 2024 respectively, which without an additional source of money would drain its financial reserves to just $4.9 billion.
That would be less than the amount needed to cover 3 months of basic imports, a threshold economists traditionally view as a danger level and sign of distress.
There was no immediate response to the JP Morgan analysis from Kenya's Finance Minister Njuguna Ndung'u.
However, officials at the ministry, central bank and Kenya's presidency have said several times it can comfortably pay bondholders next June, even if market conditions do not improve.
The International Monetary Fund's executive board signed off on almost $1 billion of new funding for Kenya in July, but both the country's fiscal and current account deficits are expected to remain around 5-6% over the next 12 months.
"Our debt sustainability analysis (DSA) points to rising external vulnerabilities," JP Morgan's analysts said, adding that as nearly half of all Kenya's debt was denominated in dollars or another major currency it was susceptible to "exchange rate risks".
(Reporting by Marc Jones; Additional reporting by Duncan Miriri; Editing by Alexander Smith)