Kenya’s domestic market ‘can fund its debt needs’

Standard Chartered Bank chief economist for Africa and Middle East Razia Khan. [File, Standard]

A robust domestic market will help Kenya comfortably meet its debt obligations, an economist has said.

The Standard Chartered Bank chief economist for Africa and Middle East, Razia Khan, said Kenya could still turn to its domestic market, even as global financial conditions tighten.

The remarks come at a time when analysts have warned over the country’s mounting debt service, with Treasury putting Kenya’s debt redemption in the financial year ending June at nearly Sh1 trillion.

 “Given the ease of foreign borrowing in recent years, Kenya has not made the most of its domestic financing capability,” said Ms Khan, noting that the average maturity of Kenya’s domestic debt, at five years, is comfortable compared to peers and can be extended further.

She said Kenya could do more to encourage offshore participation in the local currency debt market, which has been weaker than in other sub-Saharan Africa economies.

“Except for its infrastructure bonds, Kenya has not actively encouraged offshore participation, but could easily do so in the unlikely event of external funding stress,” explained Khan.

Pension funds

About 49 per cent of the country’s Sh5.1 trillion debts were domestic, with banks having the lion’s share of Sh1.4 trillion. Pension funds, insurance firms, and other non-bank sources held Sh1.1 trillion.

Non-residents’ share of domestic loans was a mere Sh26 billion. Kenya, which needs to refinance maturing debts by June 2019 from the international markets, might come face to face with jittery investors. Treasury estimates the country’s refinancing needs falling due Financial Year 2018/19 at Sh200 billion. Besides, payment of Sh78.3 billion Eurobond note in June, taxpayers are also expected to pay for two other expensive loans in the first half of 2019, as the debt burden gets heavier.

In March, Kenya will have to pay a commercial loan to Stanchart amounting to Sh78.7 billion. Another Sh37.1 billion syndicated loan arranged by Trade and Development Bank, formerly PTA Bank, will have to be paid, also before the end of June 2019, bringing the total of loans to be paid in six months to Sh200 billion.

Khan, however, said the sustainability of Kenya’s debt was pegged on the implementation of reforms, including an arrangement with the International Monetary Fund following the expiry of the Sh150 billion stand-by facility last year.