Foreign lenders increase debt to Kenya by Sh24 billion

What you need to know:

Kenya’s debt is still below the 74 per cent threshold set for it by the World Bank in its Country and Policy Institutional Assessment Index.
CBK says growth was largely driven by exchange rate revaluations.
With domestic debt now at Sh1.3 trillion, the country’s total debt is nearly 52 per cent of the gross domestic product, leading some economists to caution repayments may pose a challenge to the country’s efforts to cut the current account deficit.

Foreign commercial banks and multilateral lenders increased their lending to the State by a combined Sh24 billion between June and November 2014, the Central Bank of Kenya data shows.

The latest external creditors’ debt profiles published by CBK show multilateral lenders such as the African Development Bank and the World Bank's soft terms lender International Development Association increased lending to Kenya by Sh20 billion to Sh614.2 billion at the end of November.

The stock of external debt held by commercial banks went up by Sh3.8 billion to Sh182.4 billion. On the other hand, the debt owed to bilateral lenders (government-to-government debt) decreased by Sh17.6 billion over the period to stand at Sh272.3 billion.

The figure for commercial lenders is, however, likely to be higher in the next bulletin put out by CBK, which will incorporate the Sh68 billion that the Treasury raised in December tap sale of the sovereign bond.

“Kenya’s public and publicly guaranteed external debt increased by Sh3 billion to Sh1.089 trillion in November 2014, from Sh1.085 trillion in June 2014. The growth was largely driven by exchange rate revaluations,” said CBK in the monthly economic report for November.

The report said debt to the central government was Sh1.048 trillion, while the rest was to parastatals guaranteed by the State. The decline in the debt owed to bilateral lenders saw their share of the total debt reduce from 26.7 per cent to 25 per cent, while that of the commercial banks increased from 16.8 to 17.1 per cent.

The share of debt owed to multilateral lenders increased from 55 per cent in June 2014 to 56.4 per cent in November.

Kenya’s domestic and external debt ratios changed considerably in June with the successful debut sovereign bond, which saw investors offering nearly $8 billion or four times the $2 billion target.

With domestic debt now at Sh1.3 trillion, the country’s total debt is nearly 52 per cent of the gross domestic product, leading some economists to caution repayments may pose a challenge to the country’s efforts to cut the current account deficit.

“In recent years, Kenya has run significant twin deficits, and it is clear in 2014 that the government is still struggling to achieve fiscal consolidation, while at the same time current account has widened significantly,” said David Cowan, Citi Africa Economist, in the country outlook report released last month.

Kenya’s debt is still below the 74 per cent threshold set for it by the World Bank in its Country and Policy Institutional Assessment Index.

Last week, National Treasury secretary Henry Rotich said the economy still has large headroom to absorb and pay back more loans.

READ: Rotich dismisses fears Kenya will not honour debt

He said a debt sustainability analysis looking at the next 30 years in terms of payments plus interest shows Kenya can afford to meet its debt obligations, on the basis of projected growth that is seen at seven per cent by 2018.