Kenya's interest on Eurobond to hit Sh17.8 billion this year

Kenya will pay Sh17.8 billion in interest payments on the Eurobond loan in the new financial year, making it the biggest single repayment of a loan.

According to the budget revised estimates tabled in parliament on Tuesday, the country will pay Sh16.4 billion by the end of the current financial year, which ends in June. This amount will increase by eight per cent to Sh17.8 billion in the new financial year.

Kenya issued a Sh174 billion ($2 billion) sovereign bond in June 2014, its very first international bond. The debut bond was oversubscribed and this saw the Government go back to the international money markets six months down the line, riding on previous successes and goodwill to raise an additional Sh67 billion in a tap sale. This brought the total loan to Sh250 billion.

The growing Chinese debt will attract the second biggest interest cost centre for the Government. Treasury allocated Sh7.3 billion in the consolidated fund to pay the debt. This represents a 58 per cent jump in interest fees.

This current financial year, the Government had set aside Sh4.6 billion as interest on the Chinese debt. This represents one of the highest increases in debt repayment. But it shows just how important the Chinese government has become on the list of external creditors. The Chinese government has in the recent years been at the centre of financing of major infrastructure projects.

The Sh327 billion project is one of the biggest financing deals the nation struck with the current administration. China has also been extending grants and offering relatively cheaper loans with conditions that only Chinese companies are allowed to implement the projects.

President Uhuru Kenyatta addressing the press at State House when he announced the amount of interest the Eurobond attracted. Also present were Deputy President William Ruto, Felistas Kavisi (right) of Treasury’s debt management department, Treasury CS Henry Rotich (second right), and former Central Bank governor, Prof Njuguna Ndung’u. (PHOTO: COURTESY)

The other key lender to Kenya is the International Development Association (IDA), World Bank’s fund for poor countries. Kenya will pay Sh4 billion in interest repayments to IDA in 2016/17, up from the current Sh3.4billion.

This comes at a time when the current administration has been piling up debt at a faster rate than any other regime.

The increased borrowing has seen public debt soar by 60 per cent to almost Sh3 trillion since President Uhuru Kenyatta took office about 30 months ago. It is a borrowing spree that has seen debt rise by an average of Sh40 billion every month.

This works out to the State borrowing Sh1.3 billion a day, about Sh1 million a minute, or Sh15,432 every second. But the Government says it will ensure its borrowing does not crowd out the corporate sector and that it remains within the debt sustainability ratios.

Treasury has, however, defended the current debt describing it as manageable and sustainable. “The debt at 46 per cent of the gross national product (GDP) is much smaller than that of many European economies and does not pose any risk to the economy,” Treasury says in a statement on its website. But other economists are of a different view.

The 2015 outlook report by Citi Bank cautions the Government to reduce the level of borrowing and to keep a firm grip on spending.

The economists say that Kenya has run significant twin deficits. “It is clear in 2014 that the Government is still struggling to achieve fiscal consolidation, while at the same time current account has widened significantly.

As a result, its debt profile has arguably deteriorated and this all spilled over into shilling weakness in late 2014 (although this was also partially driven by general US dollar strength),” says David Cowan, Citi Africa Economist.