Public debt nears Sh3trn on wobbly shilling as more borrowing planned

Kenya’s public debt rose by Sh90 billion amidst a weakening shilling in the first two months of the current fiscal year to hit a record Sh2.93 trillion.

The total debt now constitutes about 51.29 per cent of the gross domestic product (GDP), meaning that more than half of the country’s annual earnings is effectively mortgaged in debt.

In June when the financial year ended, the debt stood at Sh2.844 trillion or 49.75 per cent of the GDP – showing that the percentage has significantly escalated.

“As at end the end of August 2015, total public and publicly guaranteed debt stood at Sh2.934 trillion or 51.29 per cent of GDP,” said the National Treasury in the latest update on the status of the country’s debt.

The cause of the increase in debt was disbursements by the foreign donors as well as the weakening of the shilling.

“The increase of 1.45 percentage [points] over the end July 2015 position is attributed to an increased disbursements on external debt and depreciation of Kenya shilling against all foreign currencies,” said the Treasury.

Out of the Sh2.9 trillion debt as at the end of August, the amount sourced from the domestic market is 48.1 per cent, having fallen from 49.95 per cent at the end of June.

The data shows that foreign debt increased at a faster pace in August than earlier in the year.

The government has announced plan to borrow Sh80 billion from abroad which, depending on the exchange rate, could push public debt to Sh3 trillion.

The Treasury said it increased external debt because it is cheaper or concessional with a grace period beyond six years. Kenya’s domestic debt market has no grace period, while the cost has been rising swiftly in the past few months due to high interest rates.

“Reflecting government external debt strategy of contracting or guaranteeing external loans with highly concessional terms to minimise interest rate cost, the average interest rate and grace period on the external debt portfolio was 0.7 per cent and 6.3 years, respectively,” said the Treasury.

In the first quarter of the year, Kenya used all its tax revenues to service debt leading to the current funding crisis for government.

However, Treasury secretary Henry Rotich has recently said the cash crunch is only a temporary problem relating to the difficult borrowing and economic conditions.

READ: Rotich calms fears of biting cash crisis

Mr Rotich has maintained that the level of Kenya’s public debt is sustainable at just above 50 per cent of GDP.

The Treasury’s position is also supported by the International Monetary Fund (IMF) which says Kenya has more room to borrow more and spend on infrastructure as long as the projected revenues are realised.

“The authorities’ economic programme supported by the precautionary SBA-SCF arrangements maintains a sustainable public debt position while addressing infrastructure gaps,” said the IMF in the latest report on Kenya announcing the increase in the facility for precautionary lending to Sh65 billion ($670.9 million).

The Opposition has faulted the government borrowing, arguing its servicing is the cause of the ongoing financial crisis.