Treasury struggles to meet loan obligations

Central Bank of Kenya governor Patrick Njoroge (left) with Treasury secretary Henry Rotich. PHOTO | FILE
Central Bank of Kenya governor Patrick Njoroge (left) with Treasury secretary Henry Rotich. PHOTO | FILE 

The government defaulted on two loan payments amounting to Sh1.1 billion in the last financial year, the Central Bank of Kenya has revealed.

The default was, however, settled in the financial year ending June 2015, underlining the cash crunch that presided the issue of the sovereign bond last year.

“The bank has issued a loan to the government of Kenya. Principal repayments of Sh550 million plus interest accruing are paid half yearly. The movement in the balance in the current year includes the repayment of principal of Sh1.1 billion for the prior year which was not settled at June 30, 2014,” said the CBK in its full-year financial report.

The government repaid Sh2.2 billion in the year to June to catch up with the repayment schedule, leaving the loan outstanding at Sh26.6 billion as at June this year down from Sh28.9 billion last year.

The government had requested twice for a waiver to make delayed payments on IMF loans in the same period it defaulted on the Central Bank debt.

Data from the CBK shows that the government has drawn nearly all the Sh275 billion raised from the international market even as queries continued to be raised on how the money was spent.

The amount was deposited in a special account at the Central Bank, which at end of June was holding Sh25 billion down from Sh200 billion in June last year.

“The movement in the year (in the special account) is mainly attributable to the drawdown of the proceeds of the $2 billion Euro bond by the government of Kenya,” said the CBK.

Besides the loan repayments, the National Treasury was also said to be behind the piling up of bad loans in the banking sector last year due to delayed payments to contractors.

The IMF recently reported that the Treasury had also defaulted on the external loans repayments as at the end of June this year, ostensibly because of a staffing shortage at the debt department.

The multilateral lender did not disclose how much had been at issue, but it added that the Treasury had finally settled the amount.

The Treasury seems to have dug itself into another cash crunch with reports of delayed payments, including of utility bills and salaries by government institutions.

Data from CBK shows the Treasury has overdrawn Sh43.2 billion, against a limit of Sh46.8 billion, giving it little room to manoeuvre in raising quick cash such as that needed to pay for salaries and allowances as well as maturing debt.

This has forced the government to accept highly priced debt from the local market in efforts to raise sufficient cash to cover loan repayments.

The indicative 91-day Treasury bill rate shot to 20.6 per cent in the last auction from 14.5 per cent two weeks earlier. The high rate allowed the Treasury to raise cash exceeding what it needed to repay maturing securities, unlike in previous auctions where cash raised was below the redemption value.

The government had hoped to borrow Sh229 billion from the domestic market but following the rise in interest rates it has indicated that it may turn to the international debt market.

To cover the financial gap, the Treasury plans to issue an inaugural retail bond sold through the mobile phone platform to raise Sh5 billion. The five-year bond, dubbed M-Akiba, will allow investments as low as Sh3,000.