Kenya public debt to hit Sh2.4 trillion in three years time
The Treasury building in Nairobi. High under-subscription of Treasury bills and bonds exerted pressure on the State’s spending plans, forcing it to turn to external borrowing. Photo/FILE
What you need to know:
The overall public debt is projected to rise in nominal terms to Sh1.88 trillion by the end of this month, from Sh1.62 trillion in June 2012.
The analysis by the Treasury shows Kenya’s public debt has, in gross terms, increased to Sh1.62 trillion representing 49.5 per cent of the GDP last year from Sh1.48 trillion or 53.4 per cent of GDP in June 2011.
The Treasury has projected that Kenya’s public debt will hit Sh2.4 trillion in the next three years, equivalent to a growth of Sh520 billion from the current level.
Treasury Permanent secretary Joseph Kinyua has made the projection in the latest annual public debt report for up to June 2012.
The overall public debt is projected to rise in nominal terms to Sh1.88 trillion by the end of this month, from Sh1.62 trillion in June 2012.
“However, as a proportion of GDP, public debt in nominal terms is projected to decrease from 49.7 per cent in June 2012 to 43.9 per cent in June 2016. This is in line with government strategy of reducing debt to GDP (ratio) to below 45 per cent in the medium term,” said Mr Kinyua in the report.
The analysis by the Treasury shows Kenya’s public debt has, in gross terms, increased to Sh1.62 trillion representing 49.5 per cent of the GDP last year from Sh1.48 trillion or 53.4 per cent of GDP in June 2011.
The domestic component, according to the report, grew to Sh858.8 billion equivalent to 26.2 per cent of GDP in 2012 compared to 764.2 billion (27.4 per cent) the previous year.
The external debt component also increased by Sh41.1 billion to 763.7 billion over the same period.
The country spent 15.5 per cent of its revenue as at June 2012 to repay public debt, a slight drop from 16.5 per cent in June 2011.
High interest rates, particularly during the first half of the financial year, increased the State’s debt repayment burden.
“During the period under review, domestic borrowing was constrained by the volatility in the money market interest rates and investor uncertainty occasioned by high inflation and weakening of the shilling,” the outgoing PS said.
High under-subscription of Treasury bills and bonds exerted pressure on the Treasury’s spending plans, forcing the State to turn to external borrowing.
“Following this development, the government sought alternative sources of funding by way of a syndicated loan of up to Sh51.3 billion to substitute the shortfall in domestic borrowing,” he said.
Concerns over the soaring public debt has prompted the government to draft regulations for reorganising the structure of the Treasury, including the establishment of a Public Debt Management Office (PDMO) provided for under the Public Finance Management Act, 2012.
The establishment of the PDMO, he said, will ensure prudent and sound debt management in accordance with best practice.
The Treasury’s medium-term strategy is to lower the level of public and publicly guaranteed debt to 45 per cent of the GDP, which entails adherence to prudent debt management and a reduction in the overall fiscal deficit to below five per cent from the current level of six per cent.
The report indicates that a large proportion of domestic debt is held by commercial banks although the holdings by non-bank investors such as pension funds and insurance companies continue to grow.
“A review of Kenya’s external debt portfolio shows that the debt was mainly owed to official multi-lateral and bi-lateral creditors,” he said.
The PS said whereas the overall debt is long-term and concessional in nature, there has been tightening of borrowing terms recently.
