Kenya’s debt burden shoots to Sh6 trillion amid budget cuts

Treasury expects to borrow Sh324.3 billion, either from commercial banks or the international capital market, while domestic financing is projected at Sh283.5 billion.

Kenya’s total loans reached Sh6 trillion in August after the country borrowed Sh200 billion in two months.

Most of the new loans during this period were external, with foreign debt rising to Sh3.13 trillion after Kenya received Sh110 billion, mostly from the World Bank and African Development Bank.

Treasury borrowed Sh90 billion from local investors for budgetary support which saw domestic debt reach Sh2.87 trillion, new data from Central Bank of Kenya shows.

This pushed the share of debt-to-gross domestic product (GDP) in nominal terms, to 63 per cent, assuming a GDP of Sh9.5 trillion.

National Treasury is reported to have breached the statutory 50 per cent debt-to-GDP ratio in present value terms - discounted for prevailing market conditions such as lower interest rates.   

This explains the Government’s desperation to change the debt limit to an absolute figure of Sh9 trillion. The National Assembly has approved the proposal, but Senators have insisted the amendment has to go through it.

The Exchequer in the three months to September received Sh150.8 billion in new loans. Most external loans are paid directly to the respective State agency by the development partner.

Treasury expects to borrow Sh324.3 billion, either from commercial banks or the international capital market, while domestic financing is projected at Sh283.5 billion.

Programme support

Between July and September 2019, the Treasury borrowed Sh144 billion from local investors, Sh3.2 billion from international organisations and Sh2.5 billion for programme support.

Acting National Treasury Cabinet Secretary Ukur Yatani has in recent times instituted measures aimed at slashing non-essential spending in what is aimed at bringing down the country’s debt levels.

Mr Yatani also said Treasury would soon unveil a new debt policy with the objective of retiring expensive loans. 

However, the exchequer’s debt bills during this period increased faster than the country’s tax earnings. The tax collected increased by 13 per cent.

Much of the borrowed cash was used to repay loans, in what is technically known as refinancing.

Slightly over a third of the country’s revenues went to the payment of debt, compared to 28 per cent in the same period last year.

The Government says it is trying to restructure its debt by lengthening the average maturity time of its loans. It has, however, had problems restructuring its loans, with investors still preferring short-term Government papers.

National Treasury borrowed Sh770 billion in the 2018/19 financial year that ended in June against an initial target of Sh635.5 billion, or 6.3 per cent of the GDP, as increased wages and interest on loans forced the country back into the debt market.

However, the fiscal deficit - the difference between revenues and expenditure - increased to 7.4 per cent of GDP, a situation that saw the country’s stock of public and publicly guaranteed debt surge to Sh5.81 trillion.