Treasury under debt pressure as borrowing window narrows

Kenya's 2023-24 budget deficit is Sh720 billion. [Wilberforce Okwiri, Standard]

The government is under severe debt repayment pressure even as its borrowing window continues to narrow.

Public debt stands at Sh9.6 trillion, according to the latest estimates, as both domestic and external liabilities rise rapidly.

With the public debt ceiling set at Sh10 trillion, the State only has leeway to borrow Sh400 billion - unless Parliament accedes to the Treasury's request to raise the ceiling to a percentage of gross domestic product (GDP) rather than a specific number.

In April, the National Treasury warned that the country is headed for a financial crisis unless Parliament accedes to its request to raise the debt ceiling beyond the Sh10 trillion limit.

"As at the end of March 2023, the total disbursed outstanding public debt stood at Sh9.4 trillion against a public debt limit of Sh10 trillion," said Treasury Cabinet Secretary Njuguna Ndung'u during a meeting with parliamentary committees in Nairobi.

Prof Ndung'u said domestic debt stood at Sh4.55 trillion as of March 30, the highest level it has reached, while external debt substantially exceeded Sh4.85 trillion after the depreciation of the local currency in the recent past, and fresh borrowings.

"The debt stock remains sustainable but with a high risk of debt distress," he said.

Kenya's public debt grew by nearly Sh700 billion in the six months to March this year under President Ruto's government, pointing to a sustained borrowing appetite.

This is amid growing concerns that the country could be headed to a full-blown debt crisis.

Earlier this week, Treasury raised over Sh213 billion through a seven-year infrastructure bond.

The bond was heavily oversubscribed as the government had offered Sh60 billion in the auction, but it will be at a huge cost as the coupon rate was 15.37 per cent.

Treasury CS Njuguna Ndung'u during the presentation of the 2023/24 budget. [Elvis Ogina, Standard]

The share of external debt is expected to rise further if the International Monetary Fund disburses billions of shillings that Kenya has sought from the multilateral lender to cope with a financial crunch.

The 2023-24 budget deficit is Sh720 billion, signalling the country is set for financial trouble if the Sh10 trillion debt ceiling is breached.

"The National Treasury requests Parliament to approve the replacement of the current debt ceiling of Sh10 trillion with a debt limit of 55 per cent of the gross domestic product, (GDP)" Ndung'u told the committees.

Though the Budget and Appropriations Committee raised concerns about pegging the debt ceiling on GDP, the CS maintained that government and policymaking must be solution-oriented and strive to meet the needs of the economy. "We have business cycles, and we can also see political cycles, and somehow political cycles can actually coordinate business cycles," he said.

"When we are anticipating elections to come in this country or even countries in this region, nobody wants to borrow long-term, everybody wants to borrow short-term.

"Everybody moved to 91-day bills and one-year debt, so after one year when the elections are resolved, then you find the lumping up maturities and by the time you adjust yourself, you have to face this kind of liquidity issue.

"So you cannot say that we cannot form future policies because we are having liquidity issues."

If the debt ceiling is not raised, further borrowing will not be possible, dealing a blow to the government's national programmes. Ndung'u said the world is not coming to an end, "it is a continuous process of redefining ourselves."