The share of Kenya’s external debt from commercial lenders declined to 14 percent from 15.5 percent in the year to June 2022, reflecting difficulties the government has faced accessing international credit due to high interest rates.
The National Treasury cancelled issuance of a Eurobond and syndicated loan early this year due to the current high cost of borrowing, with investors at some point, demanding rates of up to 22 percent to lend to the country.
That saw commercial loans fall from Sh1.195 trillion to Sh1.181 trillion in the 12-month period, the latest filings by the Controller of Budget show.
Lack of access to commercial loans has seen Kenya lean on multilateral lenders such as the IMF and World Bank for support, which has increased their loan portions from Sh1.6 trillion to Sh1.9 trillion or 22.8 per cent of total debt.
The government has also turned its eyes inwards, pushing up domestic borrowing to Sh4.1 trillion and narrowing the gap with foreign loans from Sh302.4 billion in June last year to Sh2.3 billion at the end of June 2022.
“As of 30th June 2022, the public debt stock stood at Sh8.45 trillion, comprising 50.7 percent due to external lenders and 49.3 percent due to domestic lenders,” said CoB Margaret Nyakango.
“Total expenditure on public debt during fiscal year 2021/2022 amounted to Sh847.15 billion, compared to Sh765.91 billion recorded in 2020/2021. The increase is attributable to increased principal repayments and interest rates for domestic and external loans.”
Treasury Cabinet Secretary Ukur Yatani said earlier that Eurobonds had become very expensive in the wake of Russia’s invasion of Ukraine, which forced Kenya to reconsider issuing a bond, which was expected to target $1 billion (Sh120 billion)
Kenya explored the option of raising a similar amount from a syndicate of banks but that also fell through due to high rates demanded by potential lenders.
The country has now turned to the IMF and the World Bank which have given Kenya multibillion shilling loans over the last two years, but which have also seen the multilateral lenders influence the country’s economic policy.
IMF had imposed several conditions on Kenya to be able to access the loans in tranches including reforms of State enterprises, special audit on Covid-19 expenditure and wealth declaration of public servants.
Financing by the concessional lenders is, however, unlikely to be adequate to cover the Sh280 billion expected to come from external sources in the financing of the Sh845 billion budget deficit for the current fiscal year.
The new administration, therefore, finds itself at risk of crowding out the private sector should it be forced to dive even deeper into the domestic market for loans.
It also puts pressure on the Kenya Revenue Authority (KRA) to meet and possibly exceed the collection target for this year. The agency raised a record Sh2.031 trillion in the fiscal year ended June 2022, exceeding its revenue collection target by Sh148.9 billion.