The Standard Guage Railway (SGR) line freight train haul snails along the Port Reitz Beach Management Unit lane to enter the port of Mombasa. [Photo by Gideon Maundu/Standard]

Kenya has received Sh200 billion from international lenders in the form of Eurobond, even before queries over the previous one are fully addressed.

The new loan marks the end of a worldwide fund-raising campaign by Kenyan officials led by National Treasury Cabinet Secretary Henry Rotich in committing ordinary folks to the 10 and 30-year loans.

Kenya will have repaid Sh520 billion or more to settle the loan and interest, depending on exchange rates – highlighting the burden on future generations borne of today’s insatiable appetite for borrowing.

Just four years ago, Kenya borrowed over Sh275 billion through a similar transaction. The spending of the funds has been questioned by many Kenyans, including the Office of the Auditor General.

Part of the 2014 Eurobond, worth Sh75 billion, is due for repayment in June next year, with a real possibility that it would be settled with the proceeds of yet another loan.

At the heart of the concerns then was the inability of the State to point out a single project that was fully funded by the Eurobond.

Ordinary citizens will eventually repay the loans, raising the likelihood of tax increases in the future to settle the national debt.

National Treasury yesterday confirmed the new borrowing which raised the country’s debt to record highs – now fast approaching the Sh5 trillion mark.

A statement by the National Treasury indicated the proceeds would be spent to fund development projects and the day-to-day running of the Government.

“The funds will be applied towards the Government’s development initiatives and liability management. We will continue to invest in the infrastructure and capacity to roll out these programmes,” the statement said.

Mounting loans

Like most Eurobond issues, including Kenya’s 2014 borrowing, the latest one attracted more offers than the amount Rotich had sought.

Independent financial organisations, including International Monetary Fund (IMF), have warned about the unsustainability of the mounting loans.

Representatives of the Washington-based IMF yesterday shared with the Budget Committee of the National Assembly their fears over the high debt.

IMF, itself a lender to the Government, warned that the country might soon be unable to service its loans.

Moody’s, a global credit rating firm, last week cautioned about the piling loans, saying the risk of default had risen.

In its advice to potential lenders, it said Kenya’s risk of defaulting on loans had grown and downgraded it to B2 from B1.

The new rating groups Kenya together with Angola, the southern African country that has had to renegotiate it loans after it was unable to repay on schedule.

Moody’s downgrade came as Rotich’s party was busy courting lenders, who took the cue and priced their loans to Kenya at a substantially higher price compared to Angola, Nigeria, and Egypt.

For the Sh100 billion portion that is repayable in 2028, Kenya will pay Sh72.5 billion over the ten years as interest – assuming the current exchange rates of Sh100 to the USD remains the same.

In the other Sh100 billion tranche, total interest payable over the next 30 years is Sh247.5 billion, two-and-a-half times the principal.

But the payable interest on either portions could shoot up in the event of any weakening of the Kenyan currency, which is the most likely eventuality considering the sustained borrowing and vulnerability of the local economy.

Interest rates levied on the loans have attracted the attention of leading economists, who have described the debt as too expensive.

Mohamed Wehliye, a Kenyan and a senior adviser to the Saudi Arabian Monetary Authority, told The Standard the foreign-currency denominated debt should be retired urgently lest the shilling tumbles.

“I hope Treasury substitutes this loan for local debt, otherwise we will go over the cliff and Uhuru Kenyatta will be a lame duck president with either a runaway currency plus inflation or zero development expenditure,” Mr Wehliye said.

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