Kenya’s debt repayment down Sh199 billion on cheaper loans

Taxpayers forked out Sh651.5 billion to service Kenya’s public debt in the year to June 30, a report by the Treasury shows, marking a 23.34 percent drop from the previous year.

The loan repayments during the period were Sh198.57 billion lower compared to Sh850.07 billion in the 2018/19 fiscal year following a decision by the State to ditch costly commercial loans.

The repayments for 2019/20 are also lower than the revised Sh768.84 billion the Treasury had earlier projected to spend for the period.

“The decline of debt service was on account of decline to lower repayment of commercial debt,” Treasury Cabinet Secretary Ukur Yatani said in the annual public debt management report to Parliament.

The Treasury said it paid Sh437.2 billion on interest payments and Sh214.2 billion on principal payments in the year ended June 30.

Of the amount, some Sh315.4 billion catered for interest on domestic loans and Sh121.8 billion on foreign borrowing.

The Sh651.5 billion loan payment translates to 41.4 percent of the total ordinary revenue collected in the financial year ending June 30. The Treasury intends to spend Sh904.7 billion in debt service in the current financial year.

Mr Yatani said Kenya’s current external debt is largely skewed towards concessional terms although commercial loans in the portfolio, including Eurobonds, have impacted the cost and risk profile.

The new external loan commitments have a repayment period of up to 15 years, making them friendly to the taxpayer.

He said the total interest payment and other charges on overall domestic debt stood at Sh315.45 billion as at end of June, being an increase of Sh46.1 billion from the previous fiscal year position.

Mr Yatani said the growth in domestic interest payment has doubled since 2015, with interest on Treasury bonds accounting for a higher percentage out of the total domestic interest payment during the financial year.

"During the fiscal year under review, interest payment on Treasury bills reduced as the stock declined while interest on Treasury bonds rose as the stock on increase," Mr Yatani said in the report.

The Treasury data shows that principal and interest payments on external debt amounted to Sh223.4 billion in 2019/20, from Sh365.5 billion in 2018/19.

"The decline was on account of lower repayment of commercial debt," Mr Yatani said.

Kenya’s public debt crossed the Sh7 trillion mark in August, comprising Sh3.4 trillion in domestic debt and Sh3.7 trillion in foreign loans.

The public finance management law has set the debt ceiling at Sh9 trillion but the Treasury warned that "total debt, including committed undisbursed balances is edging closer to the ceiling."

The Treasury report says Kenya borrowed Sh890 billion in the 12 months to June. The report indicates that in June 2018, the national government debt was Sh5.05 trillion, rising to Sh5.81 trillion in June 2019 and Sh6.69 trillion in June 2020.

The public debt comprised 52.5 percent external and 47.5 percent domestic.

The latest report shows interest on domestic debt is projected to increase to Sh454.2 billion in the 2023/24 financial year from Sh315.4 billion in 2019/20.

Interest on external debt is projected to increase to Sh207.5 billion in the next three financial years from Sh121.8 billion in financial year 2019/20.

The Treasury says principal repayments on domestic debt are projected to increase to Sh459.9 billion in 2023/24, up from Sh101.6 billion in financial year 2019/20.

"The proportion of debt relative to GDP rose from 57.1 percent in June 2018 to 65.6 per cent in June 2020. Domestic debt as a percentage of GDP rose from 28 percent in June 2018 to 31.2 percent in June 2020 while external debt including guaranteed components rose from 29 percent of GDP in 2018 to 34.4 percent of GDP in 2020," the report notes.