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Economy

Kenya’s borrowing crosses the red line, putting the economy at risk - Kippra

Treasury Secretary Henry Rotich. FILE PHOTO |NMG
Treasury Secretary Henry Rotich. FILE PHOTO |NMG  

Kenya’s insatiable appetite for loans to fund mega projects poses a risk to the economy and narrows the window for future borrowing in the event of emergencies, a State-funded think-tank has warned.

The Kenya Institute for Public Policy Research and Analysis (Kippra) also warns that Nairobi’s volume of public debt as a ratio of GDP has already surpassed the 50 per cent limit set by East Africa Community member States.

As at March 2017, Kenya’s gross public debt stood at Sh4.04 trillion – equivalent to 52.6 per cent of GDP – according to latest data from the Treasury.

“The high level of public debt in Kenya narrows the window for future borrowing, and increases vulnerability to fiscal risk in the event of any urgent need for borrowing,” says the institute in its latest economic update titled Kenya Economic Report 2017.

“Kenya’s public debt was above the EAC convergence criteria threshold of 50 per cent of GDP,” says the report released on Tuesday last week.

A majority of President Uhuru Kenyatta’s flagship infrastructure projects are funded through debt mainly from China.

The borrowing frenzy has been fuelled by the debut Eurobond as well as China, which has recently upped the ante in doling out loans to Kenya, overtaking Japan as Nairobi’s biggest bilateral lender.

Sovereign bond

Kenya in June 2014 floated a $2 billion sovereign bond on the Irish bourse and later in December that year went back to the market for an additional $750 million in what is technically known as a tap sale.

Compared to regional peers, Uganda’s public debt burden was recorded at 38.6 per cent of GDP as at December 2016, according to data from Bank of Uganda.

The national debt ratio to GDP was recorded as 42.4 per pent for Burundi, Rwanda (37.3 per cent), and Tanzania (36.5 per cent), says the research.

Kenya had a total public debt mountain of Sh1.89 trillion in June 2013, equivalent to 42.0 per cent of GDP, meaning the burden has more than doubled under the UhuRuto regime.

The taxman collected Sh1.365 trillion in the year ended June 2017, translating to a public debt-to revenue ratio of 296 per cent, missing the Treasury’s target of lowering it to around 198.3 per cent this year.

The International Monetary Fund had earlier also issued a similar warning to that of Kippra.

“Kenya’s risk of external debt distress remains low, while overall public debt dynamics continue to be sustainable. However, margins have generally narrowed,” IMF says in an update dated March 2016.

“The bulk of Kenya’s external public debt carries concessional terms, but recent commercial borrowings entails significant repayment needs,” reads the IMF review paper.

Commercial loan
The 495-kilometre Mombasa-Nairobi standard gauge rail line, was financed through a $2 billion commercial loan from the Chinese government and a further $1.6 billion in a semi-concessional loan from Beijing.

China is also funding the ongoing second phase of the high-speed railway from Nairobi to Naivasha at $1.5 billion. In total, the line from the capital to Kisumu is expected to cost $3.6 billion, and will be financed via a loan from Beijing.

Japan has advanced Kenya ¥26.7 billion (Sh23bn) to fund the building of a second terminal at the port of Mombasa expected to be completed by 2018; with a capacity of 1.2 million containers.

National Treasury Henry Rotich has declined to publish a schedule of how the Eurobond cash was spent, despite an earlier promise to do so.

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