It cost taxpayers an extra Sh435 billion to service high public debt in the year to June 2024, as expensive foreign obligations – exacerbated by a weak shilling – came due.
Latest data shows that the Treasury released Sh1.59 trillion to service domestic and external debt in the 2023/24 financial year, up from Sh1.16 trillion in the previous year.
Among the items that increased the cost of servicing the public debt in the 2023/24 fiscal year was the repayment of the $2 billion Eurobond.
“Our Medium-Term Debt Management Strategy aims at lowering the costs and risks in the debt portfolio.
“In this regard, the government will slow down the uptake of new external commercial debt and undertake liability management operations through debt swaps and other innovative solutions,” noted former Treasury Cabinet Secretary (CS) Njuguna Ndung’u when he presented the 2024/25 budget last month.
By the end of the nine months to March alone, the government had spent Sh1.24 trillion on debt servicing, which was more than the government's combined recurrent and development spending of Sh1.11 trillion over the same period.
The high cost of servicing the public debt is a result of expensive commercial borrowing by the government over the past decade, including the 2014 Eurobond – which was repaid in the 2023/24 financial year – costing taxpayers Sh197 billion in interest alone.
In the 2024 Medium Term Debt Management Strategy, the National Treasury noted that the appreciation of major foreign currencies has had a huge impact on Kenya's public debt service, with about half of it denominated in foreign currencies.
“There was an increase in both the debt service cost and the refinancing risk due to the appreciation of major currencies against the Kenya shilling and elevated interest rates in the domestic market,” Treasury stated.
However, the Kenyan shilling has gained relative stability since March this year, after months of losing ground against currencies such as the US dollar and the euro, which account for more than two-thirds of Kenya's external debt.
The local currency has come under renewed pressure in recent weeks amid youth-led protests, trading at 132 units to the dollar, down from Sh127 earlier this month.
Prof Ndung'u noted last month that the government was also looking at issuing Panda, Samurai and Sukuk bonds in financial markets in China, Japan and the Gulf as one of the ways to diversify debt sources.
“The government will maximise the use of concessional financing from bilateral and multilateral institutions to improve debt sustainability and boost our credit rating position,” he said.
The Treasury is also expected to borrow more from the local market following the shelving of the 2024 Finance Bill, which was expected to raise an additional Sh346 billion from new and enhanced taxes.
