Kenya adds Ksh.1.2T to debt stock in 2020

Kenya added Ksh.1.2 trillion to its debt portfolio in 2020 as the country’s stock of debt hit Ksh.7.3 trillion in December from Ksh.6 trillion a year earlier.

The 21.7 per cent public debt increment is highly attributable to a growing financing deficit occasioned by a steep fall in revenues from COVID-19 related disruptions to economic activity.

During the past year, Kenya turned to external sources to plug the growing budget hole with external debt growing at a higher rate of 22.6 per cent in contrast to domestic borrowing at 20.7 per cent.

Kenya’s external debt position hit Ksh.3.8 trillion from Ksh.3.1 trillion at the end of 2019 while local debt topped Ksh.3.5 trillion from a lower Ksh.2.9 trillion.

Funds to the exchequer were reduced following restrictions effected to contain COVID-19 and government relief measures such as tax cuts that were to cushion Kenyans.

Among the notable debts contracted in the past year includes a combined Ksh.187 billion ($1.74 billion) from the World Bank and the International Monetary Fund (IMF).

The slack in revenues has continued well into the current financial year with total revenue collection in the first half to December declining by 14 per cent to Ksh.800.1 billion according to new Treasury data.

Kenya is subsequently expected to borrow up to Ksh.1 trillion before the end of June as debt financing remains its only viable option in the face of lower revenues against greater expenditure needs.

The National Treasury has nevertheless emphasized its role in continued debt management through fiscal consolidation even as it admits to elevated debt risks.

“The sustainability of Kenya’s debt depends on macroeconomic performance of the economy and prudent debt management. Under performance of the economy worsens the debt indicators, thus unsustainability. However, with fiscal consolidation, the government aims to contain the pace of borrowing and hence reduce the debt ratios,” the National Treasury stated in its draft budget policy statement (BPS) published last month.

The exchequer has focused on concessional external funding over expensive sources such as syndicated loans and Eurobonds.

Further, the Treasury has outlined plans to restructuring mature loans for external and domestic with loans of longer-maturities.

Moreover, the government has found temporary relief from the debt service suspension initiative (DSSI) from which it seeks to preserve Ksh.73.5 billion in payments on debt between now and the end of June this year.

Analysts have however been less convinced of a sound fiscal consolidation path based on Treasury’s disclosure of greater borrowing in subsequent financial years.

“We are less convinced of a compelling fiscal consolidation trajectory although should a Public Debt Management Authority materialize as proposed in the Public Debt Management Bill, 2020, that could be a positive step in addressing public debt vulnerabilities,” noted analysts at Genghis Capital.

Over and above the growing stock of debt, Kenya faces greater debt refinancing risks as the rate of debt payments increasing.

For instance 30 per cent of revenues are now eaten up by interest payments while 61 per cent of taxes in six months to December were swallowed by debt refinancing.