Fred Aminga and Zachary Ochuodho @PeopleDailyKe
It is now official: Kenya has hit the debt ceiling and it can’t sustain new borrowing to run its programmes or service new loans.
And the warning came from the Government’s chief banker, Central Bank of Kenya (CBK) Governor Patrick Njoroge yesterday.
The country’s current debt portfolio stands at Sh5.5 trillion, which represents a debt service revenue ratio of 33.4 per cent instead of the recommended global average of 30 per cent.
Speaking yesterday during the post Monetary Policy Committee conference in Nairobi, Njoroge, said the country was sinking into deeper debt, adding the only way out to address maturing loans is to seek restructuring of short-term loans to increase their maturity in a bid to ease pressure on repayments.
“It is important to say that the moment for dealing with debt reorganisation, looking at debt and itself re-organising it,” Njoroge said. Efforts to reach Cabinet Secretary Henry Rotich and his team were futile.
As the cost of debt servicing rises, Kenya will be under pressure to respond to economic shocks and for development and social spending.
Among the maturing debts that National Treasury has to retire before the end of the current financial year next month include Sh78.7 billion Standard Chartered syndicated loan; the debut Eurobond with Sh78.3 billion; Exim Bank of China (Sh8.3 billion); France (Sh7.6 billion) and China Development Bank (Sh1.7 billion)
Institute of Economic Affairs (IEA) managing director Kwame Owino says with more than Sh5.5 trillion public debt, the country has already breached key International Monetary Fund debt service revenue ratios.
“As it stands now out of every Sh100 collected by the Kenya Revenue Authority Sh30 goes into servicing the country’s public debt,” Owino said.
Owino raises concern over the increased proportion of commercial bank loans with high-interest rates instead of the government going for bilateral loans – which are cheaper and are repaid over a long period.
Njoroge, whose first term is due to end next month, said the national debt stood at 55 per cent of gross domestic product – the rate at which the economy is producing goods and services –in September last year and that of the $2.1 billion (Sh219 billion) Eurobond issued in May was to enable Kenya refinance existing loans and get more room for the economy to expand and spur the country’s export capacity.
“The new borrowing needs to allow for refinancing of the debt,” he said. “We will be repaying a portion of the money amounting to Sh750 million by June 24.” Analysts have continuously warned Treasury Mandarins that rapid accumulation of public debt in the past six years will put Kenya’s economy at risk having crossed the Sh5 trillion mark for the first time in June last year. Kenya tapped the Eurobond market in 2014 raising $2.75 million (Sh275 billion) , then raised $2 billion (Sh210 billion) in another sovereign issue that closed in February 2018.
Big Four agenda
The government is reported to be in talks with the World Bank for an urgent loan worth $750 million (Sh75 billion) to support its 2019/20 budget particularly the Big Four agenda projects.
But amid falling revenues and worsening debt service obligations a pointer to the country’s deteriorating cash-flow situation amid growing appetite for spending and embezzlement of funds.
IEA data indicates that in 2017, 2018 and 2019 financial year, Kenya’s debt service to revenue ratio stood at 35.8 per cent, 30.5 per cent and 33.4 per cent respectively against the threshold of 30 per cent.
The taxpayer has borne the increasing cost of paying servicing debts as interest payment shot up by 31 per cent to Sh400 billion ($4 billion) in the current financial year from Sh305 billion ($3.05 billion) in the revised budget of 2017/18.