Kenya’s debt races past Ksh.7 trillion

    Kenya’s stock of debt zoomed past the Ksh.7 trillion mark in August wounding up at Ksh.7.1 trillion from a flat Ksh.6 trillion at the start of 2020.

    The roughly Ksh. 1 trillion addition in the public debt registry as revealed in the latest data from the National Treasury and the Central Bank of Kenya (CBK) is largely attributable to an unrestrained borrowing following the advent of COVID-19 pandemic in the country.

    Kenya’s debt stood at a flat Ksh.6 trillion a year ago, translating into an 18.3 per cent growth in the stock of loans as of August this year.

    The highest accumulation of the debt has been recorded between March and August when an estimated Ksh.800 billion was added to the stock.

    The significant accumulation of debt in Kenya has coincided with the new credit lines from Kenya’s development partners with the facilities meant to cushion the economy against the adverse effects of the pandemic.

    For instance, Kenya booked Ksh.81.3 billion ($749 million) from the International Monetary Fund (IMF) Rapid Credit Facility (RCF) and Ksh.108.5 billion ($1 billion) from the World Bank Development Policy Operations (DPO).

    External debt has grown by 15.6 per cent to Ksh.3.7 trillion between March and August while local debt has expanded by 9.7 per cent in the same period to Ksh.3.4 trillion.

    The majority of the domestic debt, 67.12 per cent is held in Treasury bonds (T-bills) with banking institutions holding a bulk 55.1 per cent of the local loans.

    The expansion of Kenya’s debt stock is expected to continue piling pressure on the country’s debt sustainability which has become severed under the COVID-19 pandemic.

    In its latest report, the Parliament Budget Office (PBO) has warned of increased debt pressure amidst what are low domestic revenues against increased spending needs under the global health crisis.

    According to the PBO, Kenya’s stock of debt is expected to hit Ksh.7.5 billion next year while the Ksh.9 trillion ceiling approved by Parliament last year will be surpassed at the end of the 2022/23 financial year.

    Kenya is already staring at a substantive debt refinancing crisis as it currently deploys 49 per cent of ordinary revenues in debt servicing.

    This means for every shilling collected, 49 cents go to debt repayment while only a mere 51 cents are left behind for budget implementation.

    “The 2020/21 financial year will present difficult economic conditions for fiscal consolidation measures to maintain debt at sustainable levels,” noted the PBO.

    Additionally, Kenya’s domestic economy is under pressure from the pandemic while the international financial markets are at the moment non-conducive for debt refinancing.

    Moreover, the Kenya shilling has marked a depreciation trend signalling higher costs of external debt refinancing which by large denominated in dollar terms.

    The National Treasury is expected to borrow Ksh.951.4 billion in net terms by June according to new revisions contained in the draft Budget Review and Outlook Paper (BROP) to include Ksh.396.8 billion in external debt and Ksh.554.6 billion in local debt.

    Externally, commercial financing will represent a partly Ksh.6.2 billion with semi-concessional loans representing Ksh.124.1 billion.

    Project loans are estimated at Ksdh.244.1 billion while programme loans are projected at Ksh.202 billion of which Ksh.150 billion is an expected World Bank DPO loan.