Kenya’s stock of public debt increased by Sh127 billion in March, with the country chalking up more external loans as it sought to deal with the coronavirus pandemic.
The country’s total loans now stand at Sh6.28 trillion after it added Sh95 billion worth of foreign loans and Sh32 billion of domestic debt.
It is the first time in the current financial year that external debt has increased by a bigger margin than domestic debt in line with National Treasury Cabinet Secretary Ukur Yatani’s policy to move away from expensive commercial loans.
It comes at a time when the country has benefited from a debt repayment suspension from official bilateral lenders.
Kenya is expected to save approximately Sh71 billion from the debt service suspension by G20, a club of rich countries.
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The Government plans to use the money to boost its health system and cushion the vulnerable population.
National Treasury is expected to resume repayment of bilateral loans early next year, with the debt moratorium expiring at the end of this year.
Public debt as of the end of February stood at Sh6.16 trillion. At the beginning of this month, the World Bank Group Board of Directors approved the disbursement of Sh5 billion to support Kenya’s response to the global pandemic under the Kenya Covid-19 Emergency Response Project.
Kenya is also expected to receive another Sh75 billion from the World Bank to help the country cushion against the crippling effects of the pandemic, including job losses.
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.
For the first time, domestic debt increased the most as Treasury strives to move away from expensive commercial loans that have pushed the country into a financial crisis.
Following a mini-budget that was tabled in Parliament on Tuesday last week, the government is expected to fork out a total of Sh696.5 billion in both principal and interest of debt by the end of June.
A category of external debt classified as “New Loans 1” registered the biggest drop in interest payments of Sh40 billion. This huge reduction left Treasury with more funds to speed up payment of interest for last year’s Sh210 billion Eurobond the country was to start servicing after the current financial year.
Repayment of China’s Sh33.6 billion for the Standard Gauge Railway that was to be made before end of June was slashed by Sh10.5 billion, with the country now expected to pay Exim Bank of China Sh23 billion.
A good chunk of the debt that Kenya has borrowed over the last eight years 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 have mostly been used for budgetary support and refinancing.
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.
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. The IMF has projected a slower growth of one per cent but expects it to rebound next year.
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.