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China takes up 30 percent of Kenya’s debt repayment

BUSINESS NEWS
By Frankline Sunday | May 5th 2021
National Treasury CS Ukur Yatani. [Elvis Ogina, Standard]

China will gobble up Sh3 out of every Sh10 that Kenya allocates for external debt repayments in the next financial year, making the Asian giant a top bilateral lender.

Data from National Treasury indicates that the government has set aside Sh117.6 billion in principal and interest payments to service Chinese debts in the 2021/2022 financial year.

Out of this, Sh24.4 billion will be in the form of interest payments to the Exim Bank of China and China Development Bank, even as interest charge on the external debt jumps to Sh138 billion in the 2021/2022 financial year, up from Sh118 billion last year.

The payments exclude Sh27 billion that the country was expected to pay China in the current financial year but was postponed following a deal between the two countries. 

Treasury, in a statement accompanying the Budget for the 2021/2022 financial year released last week, says the country’s public debt obligations have fallen below internationally recognised thresholds on the back of Covid-19 and reduced tax revenues.

“The external debt sustainability indicators illustrate that Kenya’s risk has increased from low to moderate, but this is expected to be short term as the State continues with its fiscal consolidation reform and implements liability management strategy aimed at restructuring short-term commercial loans by replacing them with long-dated maturities,” said Treasury.

“The strategy also aims at limiting non-concessional loans to projects with high economic and social returns to stimulate growth and exports which will improve debt sustainability ratios.”

The latest figures point to an increasing debt burden on Kenyan taxpayers despite assurances from the State to cut on borrowing.

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Kenya’s fiscal deficit for the 2021/2022 financial year stands at Sh952 billion with the National Treasury looking to fund this from Sh661.9 billion in domestic and Sh291 billion in external financing.

This is against recommendations by Parliament’s Budget and Accounts Committee that put the country’s debt mix ratio of 57:43 in favour of external borrowing to reduce the cost of interest payments.

Treasury however says Kenya’s existing stock of external debt has forced the government to borrow more from the domestic market. “It is important to note that 57:43 mix as recommended would require Treasury to have external borrowing of Sh387.2billion,” it explained.

“This added to the planned refinancing operations of Sh351 billion would raise the external commercial borrowing to Sh738 billion in FY 2021/22.

Kenya’s overall debt redemption and interest payments for the next financial year stands at Sh1.1 trillion, representing 88 per cent of the Sh1.3 trillion consolidated fund services.

Interest payments to domestic lenders account for a huge chunk of the stock of debt at Sh421 billion for the 2021/2022 financial year. This is set to jump to Sh482 billion in the next financial year and Sh508 billion in the 2022/2023 financial year.

Last month, the International Monetary Fund (IMF) cautioned that Kenya is at high risk of debt distress but approved a Sh234 billion extended credit facility to support the country’s response to Covid-19 and reduce debt weaknesses.

The latest debt figures come barely weeks after MPs vowed to block any increase to the debt ceiling.  

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