Treasury saves Sh32bn on lower debt repayment

Treasury
Treasury

The National Treasury has projected savings of Sh32.13 billion in debt repayment costs due to a lower budget hole and continued replacement of expensive borrowing with concessional loans from external lenders.

This has seen Treasury cut the budget for servicing debt to Sh1.36 trillion from Sh1.39 trillion.

Treasury says the cut is largely due to a lower budget deficit forecast of Sh849.2 billion by William Ruto’s regime compared with Sh863 billion that had been projected by his predecessor’s administration.

“The debt service has been revised downwards due to lower than the projected budget deficit,” the Public Debt Management Office director-general Haron Sirima told the Business Daily via text.

“There is also the continued substitution of domestic borrowing (short-term) with (long-term) external concessional borrowing. Note that domestic debt service through T-bills mature within a fiscal year, while concessional loans mature over 15 years and beyond.”

The lower budget hole of 5.8 percent of gross domestic product (GDP) — a measure of national economic output— as opposed to the 6.2 percent forecast by the previous administration is, however, largely pegged on higher growth in economic activity than earlier projected.

The Ruto administration sees nominal GDP — which has not been adjusted to inflation— growing 14.02 percent this fiscal year to Sh14.5 trillion, higher than the previous regime’s 9.93 percent to Sh14.0 trillion.

Net domestic borrowing between September and December last year — the first three months after President William Ruto took power— increased by Sh40.16 billion or 1.01 percent, provisional Treasury data shows, bringing the total to Sh4.0 trillion.

Borrowing from multilateral lenders, on the other hand, rose from $1.6 billion (about Sh208.29 billion under the prevailing official exchange rate) to $17.94 billion (Sh2.34 trillion).

The multilateral loans were largely contracted from the World Bank Group which grew $447.35 million (about Sh58.30 billion) to $11.27 billion (Sh1.47 trillion) while borrowing from International Monetary Fund increased by nearly half at $949.53 million(Sh123.74 billion) in the three-month period to $2.92 billion (about Sh379.92 billion).

Kenya turned to the multilateral institutions for concessional loans in the wake of the Covid-19 pandemic ravaging the revenues and limiting access to commercial loan markets.

The country had kept away from direct budget funding from institutions such as the IMF and the World Bank during former President Mwai Kibaki’s administration, with most of the funds coming in the form of project support.

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