EDITORIAL: Treasury has chance to scale down public debt

National Treasury building
National Treasury building. FILE PHOTO | NMG 

The maturity of the Sh1.2 trillion domestic public debt over the next year offers the Treasury the best opportunity to restructure Kenya’s loans and ease the mounting repayment burden.

About 43 percent of the Sh2.87 trillion public domestic debt—which is owed to local investors—will mature next September. From the outside the maturing debt signals economic ramifications, but it provides a window for the Treasury to begin reorganise our debt with a focus on scaling down on commercial borrowing—which forms the bulk of domestic debt

Kenya can take the painful route of using taxes to repay the bulk of the maturing debt, a move that will deny the State cash it needs for projects like building roads, power plants and revamping the rickety health sector.

It has the option of negotiating with domestic lenders who are majorly banks, insurance firms and pension schemes to extend the maturity of the loans.

The Treasury can also decide to reduce its expensive local borrowing in favour of concessional loans from foreign lenders and clear part of the maturing debt, which has the effect of making future repayments schedule more bearable.


We support the latter option of Kenya reducing its borrowing from capital markets and tapping cheaper longer dated foreign loans in the mid-term. In the long-term, the government will focus on boosting revenue collection in order to cut the need for additional borrowing. The cost of domestic debt tends to be higher compared to foreign borrowing.

Cumulative interest on domestic debt is three times higher than that of foreign debt, despite total borrowing from foreigners being 9.1 percent larger than local public loans. Therefore, the immediate priority rests on Kenya seeking an option that will reduce pressure on taxes and allow the State shift more cash to project spending like building roads, power plants and water infrastructure.

Presently, more than half of taxes are committed to debt repayments after Kenya ramped up borrowing over the past five years.

The public debt crossed the Sh6 trillion mark in July, up from Sh1.89 trillion in June 2013, a growth that has sparked concerns that the ballooning loans risk hurting the economy on huge debt repayment burden.

Kenya used Sh57 for every Sh100 collected as taxes in the three months to September for debt payments, underlining the burden of mounting government borrowing.

This is unsustainable and calls for restructuring of Kenya’s debt with ultimate goal of having a smaller share of commercial debt.