Looming cash crisis as Kenya is expected to repay debt of Sh1.4 trillion this year

National Treasury building in Nairobi.
To offset a looming cash crisis relating to ballooning debt, the government has resorted to yet another syndicated loan to offset part of the Sh1.4 trillion due this year.

Details obtained by the Sunday Standard indicate that the government has borrowed a Sh100 billion syndicated loan with two regional banks as it seeks to repay the Eurobond it took three years ago.

The two banks are Eastern and Southern African Trade and Development Bank (TDB) formerly PTA bank and Standard Chartered.

Kenya is expected to repay debts amounting to Sh1.4 trillion between January and December 2019, pointing to a looming cash crisis. The total debt stood at 5.3 trillion as at June last year, up from 4.4 trillion the previous year.

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This means that for every Sh100 that hits the Government coffers through taxes, loans and grants, Sh95 will be forked out to creditors, leaving the Treasury with only Sh5 to run the Government - pay salaries, run hospitals and schools, build roads and dams and release funds to the counties.

According to the 2019 Medium Term Debt Management Strategy, debt maturing within a year has increased significantly, putting a strain on Kenya’s dwindling revenues. In the period between January and December 2018, only Sh54 for every Sh100 mobilised went to creditors as debt repayment.

Already, the burden of debt repayment is beginning to show, with the Treasury freezing development spending by State agencies and counties as it strives to honour all its debt obligations and remain in the good books of investors.  

Debt repayment, just like remittances for the National Hospital Insurance Fund or National Social Security Fund, is part of the first-charge expenditure, meaning the Treasury pays it before it can spend on anything else.

Faced with a growing debt load, which has increased by almost a trillion in one year, President Uhuru Kenyatta has gone for an overkill, by aggressively instituting austerity measures that have negatively impacted on the implementation of 545 major projects.

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Some of the projects that have stalled are critical to the President’s ambitious plan to achieve food security and nutrition by 2022, such as irrigation, with the World Bank and its sister Bretton Woods institution, the International Monetary Fund, warning that slashing of development budget would affect the economic growth of the country.  

Interior Cabinet secretary Fred Matiang’i, in his first meeting with the National Development Implementation and Communication Cabinet Committee, took issue with the stalling of irrigation projects.

It emerged that a total six projects worth Sh1.7 billion had stalled under the National Irrigation Board (NIB). They are Nyanjigi, Mirichu-Murika, Riamukurwe, Kinjoga, Moro Siwe and Ngobit.

Counties too have suffered as the Treasury undertakes fiscal consolidation - a policy aimed at reducing budget deficits and debt accumulation.

Revised downwards

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In the first three months of the current financial year ending June, more than half of the 47 counties did not put even a single cent into development activities, with the chairperson of the Council of Governors and Kakamega Governor Wycliffe Oparanya insisting that it is part of Treasury’s wider scheme to consolidate funds. “It’s like we are being micro-managed from Nairobi,” said Mr Oparanya.

The Treasury, however, insists that county chiefs have refused to be accountable for their spending, with most of them failing to upload their development projects in the public information procurement portal. But Oparanya insists that they have been uploading all their development tenders on the portal.

However, in the Division of Revenue Bill, 2019, National Treasury Cabinet Secretary Henry Rotich, while explaining why equitable share to counties might be revised downwards by Sh9.04 billion, hinted that poor revenue performance was the reason for the Government’s desperate measures.

“The proposed downward adjustment of county governments equitable share for the financial year 2018/19 by Sh9.04 billion by the National Treasury is informed by the shortfalls in the national government’s revenue, raised nationally since the financial year 2015/16,” explained Rotich, adding that since then, the cumulative shortfall exceeds Sh374 billion. The Treasury, however, does not plan to retire all the Sh1.4 trillion using revenues. Instead, the Exchequer will refinance much of the maturing debt - borrow to repay most of this maturing debt - rather than retire them using revenues.

Of the Sh1.4 trillion that is to be repaid in a year, domestic debt comprising Treasury bills and Treasury bonds, takes a huge chunk - Sh1.06 trillion. The fraction to be given to external borrowers is about Sh324 billion.

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Since the year began, the Treasury has borrowed Sh181 billion locally in the bond market, out of which less than a third went into funding government activities. The rest was given to creditors, including commercial banks, pension funds and insurance firms.

The Treasury’s biggest headache with its domestic market is that investors seem to have had less faith in longer maturing bonds, also known as Treasury Bonds (T-Bonds).

Instead, they have preferred Government paper with shorter-term yields of less than a year, also known as Treasury Bills (T-Bills). The result has been an inverted yield curve, where so many of holders of T-Bills are suddenly knocking on the Treasury’s doors for their money.

The Treasury plans to smoothen things by swapping Treasury Bills with Treasury Bonds, thus reducing the refinancing risk - the possibility of the country not being able to comfortably borrow to repay the maturing debt as investors demand higher interest rate against dwindling revenues. 

Kenya will also refinance part of its Sh324 billion external debt maturing this year, including part of the Sh275 billion sovereign bond which should be repaid by June.   

Besides payment of Sh78.3 billion Eurobond note in June, taxpayers are also expected to pay two other expensive loans.

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TreasuryDebtTrade and Development BankStandard CharteredWorld Bank