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Government feels heat of Sh78b loan repayment

Martin Mwita @PeopleDailyKE

The government has indicated it intends to roll over a maturing $750 million (Sh78 billion) syndicated loan in the current financial year in a move that is expected to make debt repayments more manageable, Reuters news agency reported yesterday.

Technocrats at the National Treasury said the government is keen to convince lenders to roll over the syndicated loan in order to lengthen its maturity.

The loan, initially with a repayment period of two years, was arranged by Trade and Development Bank, a development financial institution under Common Market for Eastern and Southern Africa (Comesa).

Though no deal is yet to be struck, Treasury Principal Secretary Kamau Thugge told Reuters the government seeks to increase the loan’s tenor (maturity period) to between seven and 10 years.  A syndicated loan is a debt offered by a group of lenders who work together to provide funds for a single borrower.

Rolling over a loan refers to a situation where a lender allows a borrower, after a particular period of time has passed, to continue owing money after the repayment date at an agreed interest rate over an agreed period.

Syndicated loan

“We will be going back to the international market to lengthen the maturities of the debts that are falling due. It does not increase our debt,” Thugge said. “It is just a rolling over of the syndicated loan. We are just rolling it over. There is no new debt.”

The government is, however, said to be contemplating a new Eurobond at a later date, as it seeks to raise about Sh272 billion in net external financing, contained in the current financial year ending June 30, 2019.

According to Treasury, the facility is going to be the less costly even as the government’s borrowing continues to raise questions.

The country’s gross public debt stood at Sh5.3 trillion in June this year, increasing by Sh632 billion from Sh4.4 trillion in June last year. This is said to be about 56.4 per cent of the country’s Gross Domestic Product (GDP) and forecasted to expand to more than 60 per cent by 2019 on the expansion of the fiscal deficit.

The growing debt has seen global ratings firm, Moody’s, warn that the country risk losing key infrastructure China in case of default. Kenya owes China Sh554.88 billion of the total bilateral debt of Sh756.28 billion at the end of September.

In May this year, Central Bank of Kenya Governor Patrick Njoroge had raised the red flag saying the government had little headroom left for borrowing, advising Treasury to venture into non-debt financing for development projects to avoid getting into a financial crisis.

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