The National Treasury has been backed to raise fresh commercial debt of up to Sh155 billion ($1.5 billion) by December under an agreement reached with the International Monetary Fund (IMF), even as the economy chokes under huge external liabilities.
Newly released documents show the state now views the domestic market as costlier and is opting to go for external debt at a time international rates are still at near zero levels.
Already the government has committed to borrow through a sukuk (Islamic) bond in the coming months — despite absence of an enabling legal framework — to settle the recently contracted syndicated domestic debt of Sh78 billion (part of the Sh155 billion) and get more cash for infrastructure development.
Treasury secretary Henry Rotich recently disclosed that part of the Sh229 billion initially intended to be borrowed domestically would now be sourced internationally where rates are still low. The initial plan was to borrow Sh83 billion commercial debt in this fiscal year.
“I think we are still way below what you can say is unsustainable. There is no cause for alarm in our debt levels especially when it is going into development and not recurrent expenditure,” said Faith Atiti, a research analyst at Commercial Bank of Africa’s treasury department.
The Sh155 billion target is supposed to be the cumulative amount starting from July 1 to end of December.
Currently, total public debt stands at Sh2.9 trillion or nearly 52 per cent of the gross domestic product (GDP). The current policy, however, allows up to 74 per cent in total public debt (including guarantees) of GDP.
In the IMF report, the Treasury said that in the medium term, it would move towards containing the primary fiscal deficit to 5.3 per cent of the GDP, so the debt falls to 45 per cent of the GDP.
“Our fiscal anchor remains maintaining gross public debt below 45 per cent of GDP in present value terms,” said document signed by Mr Rotich and the IMF.
In the recent past, some analysts and politicians have expressed dissatisfaction with the levels of debt arguing that it is spiralling out of control.
The voices against debt have become louder with the onset of a cash crunch which has forced the Treasury to spend the entire amount of money raised through taxes to service debt during the first quarter of the fiscal year.
But donors and the Treasury have maintained that the national output actually allows significantly more borrowing given that the percentage is still far from what can be considered unsustainable.
They have dismissed the argument that Kenya could be headed the way of Greece, whose debt is a massive 168 per cent of its GDP.
However, Ms Atiti said Kenya should ensure that the debt incurred is directed towards projects that increase productive activities generating cash for the repayment.
Both external and domestic debt have shown they hold risks. Currently, half of the debt is external and is subject to the changes in the value of the shilling whose depreciation this year has made debt service expensive.
However, the rest is domestic debt whose risk of rising interest rates has already been realised.