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Costly loans eat up Sh69 billion in six months

By Dominic Omondi | February 18th 2019

Interest repayments on Kenyan debt to China and several commercial banks alone gobbled up Sh40.6 billion in six months last year, new data shows.

According to the National Treasury’s Quarterly Economic and Budgetary Review for between July and December last year, about 60 per cent of all the country’s external debt service was interest payments to the two creditors.

This pushed the country’s total external debt service during this period to Sh69 billion, further straining its shrinking revenues.

Increased interest payments on public debt, the International Monetary Fund (IMF) warned last year, resulted from the country’s rising reliance on non-concessional (expensive) borrowing.

IMF, which recently increased Kenya’s risk to debt distress (default) from low to moderate, said interest payments on public debt increased to almost one-fifth of the country’s revenue, pushing it up to the top five frontier economies with a higher fraction of interest payment to earnings.

Treasury said in its review that interest payments to commercial banks over the six months were the highest at Sh27.8 billion compared with principal payments of Sh5.4 billion.

China’s interest payments stood at Sh12.8 billion against a principal payments of Sh2.6 billion in the first half of the current financial year ending June 2019.

After Kenya recalibrated its economy in 2014, graduating into a lower middle income economy, cheaper loans as those from the World Bank have been hard to come by.

The country has thus been thrust into a new class of financing terms known as blend where it depends on commercial loans such as those from commercial banks and sovereign bonds as well as semi-concessional loans such as those given by China.

“As official development assistance is limited and as the domestic market faces credit volume, the credit flows from the external private sector has started to increase,” said Treasury in its 2018 Medium Term Debt Management Strategy.

Interest payments to China, a major financier of Kenya’s infrastructure projects, including about Sh400 billion for the Mombasa-Nairobi Standard Gauge Railway project, was more than what Kenya paid in principal and interest by all the other bilateral lenders combined.

In one year, from December 2017, Kenya borrowed Sh39 billion from foreigners, bringing the country’s external public debt stock to Sh267.4 billion by the end of last year.

Kenya’s total public and publicly guaranteed debt as at December last year was Sh5.3 trillion, with a huge fraction being external. In the same period in 2017, total debt was Sh4.4 trillion.

Increased payments to foreigners due to high interest, proved a damper on Central Bank of Kenya’s bid to maintain a stable external position, according to Treasury. The near-upset of high interest payments, noted Treasury, was offset by an increase in exports of goods and services and an improvement in diaspora remittances.

To avert a looming cash crisis relating to ballooning debt, the Government has resorted to yet another syndicated loan to offset part of the Sh1.4 trillion due this year. This comes as details emerge that it has taken up a Sh100 billion syndicated loan with two regional banks as it seeks to repay the Eurobond it took three years ago.

The banks are Eastern and Southern African Trade and Development Bank (TDB), formerly PTA Bank, and Standard Chartered Bank.

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