The Central Bank of Kenya headquarters in Nairobi. Kenya’s gross public debt has hit a new high of Sh2.1 trillion, equivalent to 56.2 per cent of the gross domestic product. Photo/FILE
What you need to know:
Kenya’s gross public debt has hit a new high of Sh2.1 trillion, equivalent to 56.2 per cent of the gross domestic product
Domestic debt rose by Sh51.44 billion in September to stand at Sh1.17 trillion while external loans climbed by Sh1.77 billion to Sh889.31 billion
Kenya’s gross public debt has hit a new high of Sh2.1 trillion, equivalent to 56.2 per cent of the gross domestic product.
New Treasury data for up to the end of September shows that most of the recent increase in the debt was driven by domestic borrowing.
The Treasury’s appetite for borrowing from the domestic market sustains high interest rate spread as banks only lend to the private sector at a significant premium above the cost which they charge on government debt.
Domestic debt rose by Sh51.44 billion in September to stand at Sh1.17 trillion while external loans climbed by Sh1.77 billion to Sh889.31 billion.
“The increase of 2.65 per cent over the end of August position is mainly attributed to an increase in domestic debt,” said the Treasury’s monthly debt bulletin September 2013.
The structure of public debt shows that 56.8 per cent is domestic debt while 43.2 per cent is external.
“Reflecting Government external debt strategy of contracting or guaranteeing external loans with highly concessional terms to minimise cost, the average interest rate and grace period on the external debt portfolio was 1.3 per cent and 6.9 years, respectively,” said the bulletin.
The average maturity period for external loans was 33.6 years while the average grant element was 65 per cent.
The Treasury has a debt management strategy of maintaining at least 35 per cent grant element in new foreign debt, unless for commercial ventures.
“As an indication of the success in the lengthening of maturity structure of domestic debt to minimise refinancing risk, the average maturity profile of outstanding Government domestic debt stood at five years and one month as at end September 2013,” said the bulletin.
Both the International Monetary Fund (IMF) and the Central Bank of Kenya (CBK) have maintained that the country’s debt is sustainable, citing the net government borrowing ratio of just about 50 per cent, even as the gross borrowings have hit more than 50 per cent.
During last month’s conference on Kenya’s economy, the CBK deputy governor Harun Sirma said the ratio of Kenya’s nominal debt to GDP has been declining from 77.4 per cent in 2000, yet the country has not received any external debt relief—citing it as a reflection of strong sustainability.
The September monthly bulletin showed that the biggest portion of Kenya’s foreign debt (33.5 per cent) is denominated in the euro, 31.8 per cent is in US dollars, 14.7 per cent is in the Japanese yen, 5.6 per cent in the yuan, 5.5 per cent in pound sterling and another 8.9 per cent is in a mix of other currencies.
The actual cumulative debt service for September 2013 was below the projected amount by Sh2.68 billion due to stronger currencies than had been projected at the budgeting stage.
