Public debt repayment hits Sh1trn for first time

Repayment of public debt will for the first time cross the Sh1 trillion mark from July, underlining the burden of mounting government borrowing.

The Treasury in February disclosures to Parliament show that it will pay Sh1.023 trillion for loans in the year starting July, making it the single-largest expenditure and more than double the Sh435.7 billion that taxpayers paid for debt four years ago.

At Sh1.023 trillion, Kenya will require an average of Sh2.8 billion daily in the financial year when the repayment of principal sums of a majority of the commercial and semi-concessional loans fall due.

The Jubilee administration has ramped up borrowing in recent years to build a range of infrastructure projects, leading to a squeeze on its finances as the loans fall due just as the economy is reeling from the impact of the coronavirus crisis.

Kenya will use Sh5.76 for every Sh10 collected as taxes and other levies in the year starting July for debt payments, leaving little cash for building and maintenance of roads, revamping the rickety health sector, boosting food security and affordable housing.

Kenyatta administration will have borrowed at least Sh7.6 trillion to implement his manifesto in the 10 years of power after inheriting slightly more than Sh1.89 trillion in June 2013 from the Kibaki government.

Treasury chiefs project in the Budget Policy Statement released this month that total debt will jump to Sh8.59 trillion in the year ending June 2022, less than two months before the end of President Uhuru Kenyatta final term.

Several local and international agencies, including the IMF and World Bank, have expressed concern over Kenya’s rising appetite for borrowing to finance state expenditure.

The Parliamentary Budget Office — a technical unit that advises lawmakers on financial and economic matters — says “debt repayment may be crowding out development expenditure”.

The unit has cited a reduction in the share of development expenditure to gross domestic product (GDP) — the value of economic output — from 6.2 per cent in Jubilee administration’s first financial year in office (2013/14) to 5.9 per cent in the year ended June 2020.

“Whereas development spending as a share of GDP decreased, other major expenditure categories such as expenditure on wages and salaries of national government employees, expenditure on operation and maintenance, pensions and transfers to counties remained relatively unchanged between 2013/14 and 2019/20,” the PBO wrote in a report late January.

The debt repayment will be nearly thrice Kenya’s combined development spend of Sh355 billion in the current year and more than 16 times that of infrastructure like roads whose spend is expected at Sh76.89 billion.

It is almost three times the Sh383 billion allocated to the 47 counties and Sh14 billion for revamping infrastructure in educational institutions.

The debt repayment costs will be driven up by huge principal sums owed to external lenders such as China Exim Bank, which funded the standard gauge railway (SGR) line from Mombasa to Suswa near Naivasha.

The Treasury estimates repayment to foreign creditors, who account for 51 per cent of Kenya’s total debt portfolio, will jump 58.40 per cent in the year starting July to Sh406.21 billion the current year’s Sh256.46 billion.

Domestic repayments, on the other hand, will drop Sh84.71 billion, or 12.07 per cent, to Sh617.24 billion.

Repayments to Chinese lenders — Exim and China Development Bank — will account for 29.54 per cent of the Sh406.21 billion external debt costs in the fiscal year 2021/22, according to the forecast by the Treasury.

Kenyatta administration began in 2016 to pour billions into infrastructure projects, including a Chinese-built railway, roads and bridges.

Kenya has already secured deals to suspend debt service with the Paris Club and other creditors, including China, covering the six months to the end of June this year.

Under those deals, which fall under the G20’s initiative to offer poor nations debt relief, Kenya is deferring payments worth $600 million due in the period.

The deferred amount, which includes $378 million to China alone, will be paid over five years after a grace period of one year.

The Treasury will spend Sh99.36 billion to service Exim Bank debt in the year starting July, a 132.84 per cent surge compared with Sh42.67 billion in the current fiscal year ending June.

The jump in debt obligations to China’s Exim bank partly reflects the Sh22.04 billion that was deferred this year as part of the debt relief.

Repayments to Italy, which has deferred Sh6.92 billion, are projected to jump more than three-fold to Sh21.09 billion from Sh6.94 billion this fiscal year, while France’s will more than double to Sh8.01 billion from Sh3.01 billion.

The Treasury projections further show repayments to the World Bank Group’s International Development Association (IDA), the country’s largest multilateral lender, will climb 20.42 per cent to Sh31.89 billion.