Now State shuns domestic market to tame soaring interest rates

Treasury Cabinet Secretary Henry Rotich. He indicated the State may go for syndicated loans as they are cheaper. [PHOTO:FILE/STANDARD]

Kenya has slammed brakes on borrowing from the domestic markets in a new measure that could contain the spiralling interest rates.

Instead, National Treasury Cabinet Secretary Henry Rotich plans to borrow internationally - possibly through another syndicated loan. And early yesterday, the international banks confirmed that they had actually wired Sh60 billion ($600 million) into the Government’s bank accounts.

“It is cheaper to raise funds in the international markets; we are considering other options like the syndicated loans, which are cheaper,” Rotich told The Standard at Parliament Buildings on Monday.

He was speaking soon after emerging from a marathon four-hour grilling session by the Public Accounts Committee over a now controversial decision he took to retire another syndicated loan without the approval of Controller of Budget Agnes Odhiambo.

“If we can use the cheaper loans to settle the costlier borrowing at home, then that is what we will do.”

Yesterday, the three banks - Citi, Standard Bank and Standard Chartered Bank - issued a joint statement from London stating that they had signed a deal on the two-year $600,000,000 syndicated loan facility with the National Treasury - acting on behalf of the Government of the Republic of Kenya. That deal was brokered on Thursday last week.

Proceeds from the loan will be spent to fund costs approved by Parliament in the Fiscal Year 2015/16, including infrastructure development projects in the road, energy, agriculture and water sectors, the banks said.

That was the second syndicated loan accessed by the State, and it's now clear that there would be many more to come. It is however not certain which commercial banks have been approached to provide the loans moving forward, or whether the same three international lenders that will be retained in the planned borrowing.

Treasury top officials had earlier said the amount requested from the three banks was about Sh76 billion, ($750 million) but there has been no communication on the variance. Critics have however poked holes in the Government’s aggressive borrowing to finance capital-intensive projects, claiming that the country was being mortgaged and that the external debt was placing an unnecessary strain on future generations.

But the State has responded that the projects will have huge returns in future to more than make up for the debt exposure. The State’s cost of borrowing from the domestic markets have shot through the roof in the recent weeks as indicated by the interest rate hikes charged by commercial banks.

The monetary tightening stance taken by the Central Bank of Kenya that was aimed at supporting the shilling from further depreciation had precipitated a sharp rise in borrowing charges.

Recent global developments have also seen steady gains made by the US dollar, which has ravaged other currencies around the World, including the Turkish Dinar, which slumped by nearly 90 per cent.

In the past four weekly auctions of the Treasury Bills, which the State used to borrow short-term funds, interest rates have breached the 22 per cent level, which the State now terms as ‘too high and unsustainable’.

It is now clear the Government will only pick the cash it requires from the weekly T-Bill auctions and at interest rates it is comfortable with.

But Rotich concedes that borrowing outside the domestic markets would often expose the economy to external shocks. MPs have specifically expressed concerns over the country’s level of external debts which are repaid in foreign currency and in a way contributing to the depletion of the country’s forex reserves.