In Summary
  • Economic analysts say the country is particularly bound to find itself in a rather rough road this financial year when some of the major debts will mature.
  • To mitigate the impact of debt repayments, Treasury will be compelled to negotiate for a series of refinancing, a measure it has already resorted to.
  • Rolling over debt, as refinancing is also referred to, is expected to be the norm going forward as more government credit facilities become due.

Kenya’s rising debt has been a hot-button subject for a while now. With the debt now in the region of Sh5 trillion, the question is for how long will it remain sustainable. While Treasury has always been quick to point out that the debt is still within the limits of financial prudence, analysts have constantly warned that the economy is beginning to feel the heat.

Economic analysts say the country is particularly bound to find itself in a rather rough road this financial year when some of the major debts will mature.

To mitigate the impact of debt repayments, Treasury will be compelled to negotiate for a series of refinancing, a measure it has already resorted to. Rolling over debt, as refinancing is also referred to, is expected to be the norm going forward as more government credit facilities become due.

Treasury secretary Henry Rotich has budgeted for Sh870.62 billion to pay off maturing debt and interest in the current year which ends next June, nearly double the Sh455.34 billion estimates for the year ended last month and Sh435.72 billion in 2016-17 financial year.

That means 49.95 per cent, or nearly half of the Sh1.743 trillion which the Treasury targets to collect from taxpayers will be spend on debt repayments, well above the recommended debt service-to-revenue threshold of 30 per cent.

The debt repayments are more than double the Sh394.89 billion which has been allocated to development projects, underlining the impact on economic activities.

Domestic debt repayments are estimated at about Sh505.96 billion between this month and next June, statistics from the Treasury show, while external debt obligations are projected at Sh364.66 billion.

President Uhuru Kenyatta’s administration has been contracting short-term domestic debt since September 2014 to build roads, bridges, power plants and the Standard Gauge Railway. The government is banking on these mega projects to accelerate economic growth and somehow justify the current debt burden.

It is worth noting that the beginning of the increased uptake of short-term domestic loans coincided with the period when Kenya was upgraded to a lower middle income economy, locking it out of the highly concessional loans from development lenders such the World Bank Group’s International Development Association.

Some of the external debt which are set to be redeemed this financial year include the five-year portion of the first Eurobond estimated at Sh78.30 billion and Sh78.74 billion syndicated loan, according to analysts at Genghis Capital.

The commercial loan was procured early last year from Standard Chartered, Standard Bank, Citi and Rand Merchant Bank.

“The external debt obligations in FY2018/19 has risen to 41.88 per cent of overall public debt from 36.97 per cent in Fy2017/18 mainly attributed to external debt redemptions. This brings to the fore the currency risk as a weaker local unit drives up the external debt obligations,” the Genghis analysts said in a recent note.

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