Economy

Loan-servicing takes up second biggest chunk of Treasury spending

HENRY

Treasury Secretary Henry Rotich plans to float a diaspora bond and an Islamic bond (sukuk) next year. PHOTO | FILE

Interest payment took up 14 per cent of the Sh276.6 billion that the Treasury spent in the quarter to September, making loan servicing the second-largest expenditure item after teachers’ salaries.

Data released by the National Treasury indicate that interest on domestic and foreign loans grew rapidly by 35.8 per cent over the last quarter of 2013/14 to hit Sh38.5 billion in the three months to September.

“The domestic interest payment totalled Sh34.7 billion which was higher than the Sh25 billion paid in the corresponding period of the previous financial year, mainly due to higher borrowing,” says the quarterly economic and budgetary review paper.

During the period, the Treasury spent Sh41.2 billion on Teachers Service Commission, Sh25 billion on infrastructure projects and Sh9.8 billion on internal security.

The data show that Kenya’s gross public debt stood at Sh2.3 trillion at the end of September out of which Sh1.2 trillion (53 per cent) was domestic and Sh1.08 trillion external.

Just half of the domestic debt (Sh601 billion which is a drop from Sh617 billion in June) was held by commercial banks, a possible indicator that government strategy to grow retail lending could be bearing fruit.

While the disparity in domestic and foreign loans interest payments could be attributed to difference in repayment schedules, the fact that only Sh3.8 billion was paid to service external borrowing could be a pointer to high cost of borrowing in the domestic debt market.

The report comes at a time when the Treasury is seeking Parliamentary approval to raise the external debt ceiling from Sh1.2 trillion to Sh2.5 trillion.

The Finance, Planning and Trade committee has endorsed the Treasury’s proposals to raise the ceiling.

The Parliamentary Budget Office (BPO), which advises MPs on economic and fiscal policies, has said that the proposed ceiling is too high and warned of high interest payment burden in the next five years.

Kenya is seeking the window to be able to raise more money on concessionary terms from external sources despite foreign exchange risks.

“We want the Sh2.5 trillion set as a nominal figure that reflects our rebased economy and infrastructural development needs but this does not mean that our borrowing will reach that ceiling,” Treasury Secretary Henry Rotich said last week.

Mr Rotich plans to float a diaspora bond and an Islamic bond (sukuk) next year following the success of June’s $2 billion Eurobond.