Kenya will have to borrow to repay maturing debts

Kenya and other African countries are back to the debt trap of the ‘90s, leaving them with little option but to borrow more to refinance maturing debts.

Experts said yesterday Kenya in particular was faced with narrowing options in its quest to get out of its current situation, made worse by the Government’s insatiable appetite for debt as creditors come calling.

Standard Chartered Bank Chief Economist for Africa and the Middle East Razia Khan said the country could only plunge further into debt because of its shrinking fiscal space.

Recently, the Government borrowed a syndicated loan of $750 million (Sh77.2 billion) from four international commercial lenders to repay another syndicated loan that fell due last October.

The country is also said to be planning to issue another Eurobond this year, as the first payment for the first tranche of 2014 falls due next year.

“Once a country issues a Eurobond, it makes sense to come back to the market to refinance,” explained Ms Khan while launching a new economic report by the bank titled The Economic Outlook: Global, Regional and Kenya in Nairobi.

She said Kenya had the advantage of tapping from both external and domestic markets.

But with the country registering a massive fiscal deficit and the value of exports not growing convincingly, she added, debt might not come cheap.

Already, global rating agency Moody’s has put Kenya on review for a downgrade, citing the huge fiscal deficit and an expanding debt-to-GDP ratio, which has hit 56 per cent.

Credit facility

However, Khan said the country could cover itself by signing up for the IMF’s precautionary credit facility, due for renewal in March.

“If we sign up for an IMF programme, we will be signing up for a requirement of fiscal policy and that will provide reassurance to investors. So the risk premium that we have to pay on our debt declines,” she said.

The economist said with the facility, the country will have identified itself as a good reformer.

“It will be important for the ease of Kenya’s refinancing in order to instil investor confidence and in order to instil the confidence of rating agencies.”

Standard Chartered has projected the country’s growth in 2017 at 4.5 per cent, lower than any other projections.

Khan said the country’s growth this year would depend on how quickly the Government could go back to investing in infrastructure as well growth in credit uptake by the credit sector.

However, with a bigger fiscal deficit, it will be difficult for the country to afford the huge investments that drove the economy in 2017.