Total debt rises to Sh6.16 trillion in February

Treasury CS Ukur Yattani.

Kenya’s stock of debt increased by Sh158 billion in two months with the country owing creditors Sh6.16 trillion by the end of February.

Central Bank of Kenya (CBK) data shows that total public debt increased by less than two per cent from Sh6.05 trillion in last December.

Domestic debt increased the most as current National Treasury officials strive to move away from expensive commercial loans that have pushed the country into a financial crisis.

Domestic debt increased by Sh98 billion to Sh3.04 trillion, while external debt went up by Sh10 billion to hit Sh3.12 trillion.

National Treasury Cabinet Secretary Ukur Yatani has been implementing austerity measures aimed at reducing President Uhuru Kenyatta’s debt appetite.

A good chunk of the debt has been used for infrastructural development, especially the bilateral loans from China. However, Kenya has also tapped into the international capital market taking dollar-denominated sovereign bonds, Eurobond, which has mostly been used for budgetary support and refinancing.

Using the current exchange rate, Kenya’s external debt stands at Sh3.26 trillion, after the weakening of the shilling occasioned by the coronavirus pandemic that has seen many emerging and frontier markets experience capital flights.

This means that by losing ground against the dollar, Kenya’s stock of debt has spiked by Sh142.8 billion. This would push the country’s total debt to Sh6.3 trillion.

This comes on the backdrop of the country’s reserves of foreign exchange being depleted following poor financial inflows that have impacted tourist receipts, diaspora cash inflows and export earnings.

With low forex reserves, the country is staring at a financial crisis, where it will have a problem repaying its dollar-denominated debt.

By the close of trading on Friday, the shilling was trading at 105.6 against the dollar, compared to an average of 101.3 in December.

More than half of the country’s debt is from foreigners, and a big chunk of the loans is commercial debt, especially sovereign bonds.

Multilateral institutions such as the World Bank, International Monetary Fund (IMF) and the African Development Bank also hold a sizeable chunk of the external loans.

Moreover, the level of debt could change dramatically with the coronavirus crisis that has seen the government request up to Sh122 billion from the World Bank and International Monetary Fund.

The money will be used to boost the government’s health expenditure in the face of the health crisis that has also taken the shape of an economic crisis.

Without adequate dollars of its own, the Treasury mostly refinances most of its external loans - basically borrowing to repay another loan.

However, with the current volatility that threatens to plunge the global economy into recession, it will be difficult for Kenya to borrow from the international market.

Appeal to creditors

The IMF has already asked a group of rich countries not to push for debt recovery from a group of developing countries, including Kenya as they continue to grapple with the pandemic.

National Assembly Members of Parliament, through their advisory agency, Parliamentary Budget Office (PBO), have proposed a stimulus package of Sh272 billion.

Much of this cash, Sh122 billion, they noted, can be realised by cutting ministries’ non-essential expenditures such as travel, entertainment and training. The government can then borrow the other Sh150 billion.

However, the credit market is different. The African Trade Insurance Agency noted that African countries are likely to experience challenges raising funds in global markets, with African bond yields rising sharply.

“As a result, planned Eurobonds in Benin, Côte d’Ivoire, Nigeria and South Africa may be delayed or shelved,” said Acting ATI Chief Executive John Lentaigne.

Mr Lentaigne noted that Kenya was among six African countries that were likely to experience a significant reduction in tourism earnings, representing between five and 10 per cent of gross domestic product (GDP) and 20 per cent of total employment. Others are Madagascar, Mauritius, South Africa, Seychelles and Tanzania.

Kenya has sought outside help in the fight against coronavirus, with the World Bank and IMF pledging Sh122 billion. Besides helping the country address the health and economic impact of the pandemic, the money will also help replenish its forex reserves.

The government, which has been running on empty, appealed to the development agencies as the virus continued to wreak havoc on the country’s health and economic fronts.

As the country stares at a major slowdown in its economic growth this year, the Central Bank of Kenya’s Monetary Policy Committee has scaled down growth prospects to 3.4 per cent from an initial forecast of 6.2 per cent.

It will be the slowest growth since 2009 when it expanded by 2.7 per cent following effects of the post-election violence a year earlier and a global recession.