Debt sustainability fears as State's appetite for short-term loans grows

Treasury Cabinet Secretary John Mbadi. [File, Standard]

The government upped its appetite for short-term debts over the financial year to June 2024 as it struggled to meet financial obligations.

This further strained debt repayment, which is currently taking a huge chunk of tax revenues while pushing the country’s debt towards unsustainable levels.

New National Treasury data shows that short-term loans maturing in less than one year increased and accounted for 18.6 per of the country’s stock of public debt as of June 2024.

This was from 16.7 per cent a year earlier in 2023. The loans taken are largely treasury bills with a maturity period of between 90 days and 360 days.

Other than the short duration that the State has to repay the loans, they also tend to attract high interest rates.

“The proportion of instruments with less than one year to maturity increased to 18.6 per cent as of June 2024 from 16.7 per cent in June 2023 and this was attributed to the National Treasury uptake of short-term instruments,” said Treasury in the 2025 Medium-Term Debt Management Strategy, which also shows that nearly 20 per cent of the domestic debt will mature by June of this year. 

“The (debt) redemption profile shows that 18.6 per cent of domestic debt will mature by June 2025, mainly due to short-term (treasury bills) government securities falling due. Overall, the repayment schedule is bunched for next nine years due to large share of Treasury bills and near term maturities treasury boards, international sovereign bonds and syndicated loans.”

Treasury noted that borrowing from external lenders had become increasingly difficult owing to worsening market conditions due to global geopolitical economic shocks including monetary policy tightening in major economies and uncertainties related to the war in Ukraine. The result has been an increase in interest rates for new external loans to 4.6 per cent as of June last year from 3.2 per cent in June 2023.

At a briefing last Thursday, Treasury Cabinet Secretary John Mbadi said the government had reduced its uptake of short-term debt as part of fiscal consolidation.

“Because of the fiscal discipline that the government is implementing, this has resulted in the 91 TBill rates having declined to 9.11 per cent in February 2025. For a long time, government papers have never traded at a single-digit percentage. Reduced from 16.1 per cent in January 2024,” he said, adding that interest on 182-day treasury bills had declined 9.85 per cent from 16.2 per cent, while 364-day treasury bills were trading at below 11 per cent from 16.4 per cent last year.

Kenya’s debt stood at Sh10.58 trillion at the end of June 2024, up from Sh10.279 trillion in 2023.