Treasury plans new fund to retire short-term loans

The Treasury plans to set up a special fund that will be used to retire short-term loans that are due for repayment to avoid future liquidity crises.

Treasury secretary Henry Rotich told MPs on Thursday that the government will float a long-term Eurobond to set up a “sinking fund” that will be used to retire short-term debts as they fall due.

The government has announced plans to borrow Sh77.5 billion from a syndicate of banks to ease the current cash crisis, which is blamed on high debt repayments amid low tax revenue inflows.

Mr Rotich told MPs that all the planned borrowing is within budget limits approved by Parliament.

“We indicated in the Budget Policy Statement that we were going to raise Sh220 billion through borrowing and that amount was factored in the current budget. We know that our debt level is still sustainable,” said Mr Rotich.

The Treasury borrowed new loans amounting to Sh104.7 billion from external sources between November 1, 2014 and June 30, 2015.

According to data presented to Parliament by Mr Rotich, the money went to finance mega projects such as provision of health equipment to Level 5 hospitals, the Last Mile electricity connectivity, small-holder irrigation schemes and part of the Northern Corridor infrastructure improvement project.

“What we borrow is what we consider feasible and doesn’t undermine our debt sustainability. We are substituting borrowing domestically to externally,” he said.

READ: Rotich calms fears of biting cash crisis

The Treasury is also pursuing a currency swap option to mitigate exchange rate risks.

“The Kenya shilling exchange rate to the US dollar has weakened but other world major currencies like the Euro and Yen have not moved.

‘‘We are considering doing a currency swap from the dollar to other currencies that have not weakened,” he told the Budget and Appropriations Committee.

Treasury records show that Kenya’s debt service payments for the first quarter compared to last year shot up as a result of the retirement of the Sh67 billion syndicated loan.

The opposition Coalition for Reforms and Democracy (Cord) has accused the Treasury of relying heavily on borrowing to run the government.

Cord co-chairmen James Orengo and Johnstone Muthama said the admission by Mr Rotich that the country was broke meant that the ruling Jubilee coalition had failed to govern.

“The auditor general in his latest report said Sh67 billion was lost but the Treasury wants to borrow an additional Sh78 billion. There is the case of Cabinet secretary Anne Waiguru on the loss of Sh791 million belonging to the National Youth Service and the Sh1.4 billion Anglo Leasing scandal,” said Mr Muthama.