In the last few weeks Kenya has taken up hundreds of billions of shillings in foreign loans from multilateral lenders to support its budget as the coronavirus pandemic continues to wreak havoc on its economy.
The debt is a shot in the arm in the fight against the disease and to the economy, but for debt-watchers, it is more headache as they worry about the ability of the already overburdened taxpayer to service the mounting debt bill.
And going by recent Treasury projections, it appears their sustainability concerns are well founded. The ministry forecasts that debt payments will cross the Sh1 trillion mark in President Uhuru Kenyatta's last year in office, underlining the country’s push to restructure some of the arrears to ease pressure on thinning tax receipts amid Covid-19 crisis.
Treasury chiefs project in the medium-term Budget Estimates that expenditure on servicing the country's rising debt will top Sh1.023 trillion in the year ending June 2022 from Sh904.7 billion next financial year starting July 2020.
In the current year ending next month, the Treasury estimates debt obligations will hit Sh768.45 billion following last month's upward revision from initial budget of Sh696.55 billion.
The mounting bills owed to domestic and foreign creditors come at a time uncertainty is rising over growth in tax receipts in the next few years.
Revenues have been hardest hit by partial trade lock-downs and travel restrictions put in place to stem the spread of coronavirus pandemic.
The projections mean Kenya's debt servicing costs will have jumped four and a half times, or Sh795.87 billion, in June 2022 compared with Sh227.58 billion during Mr Kenyatta's first year in office.
The Jubilee administration has ramped up spending since they took power in 2013 largely to build infrastructure such as new roads, a modern railway, bridges as well as electricity-generating plants and transmission lines.
That has widened deficits in annual budgets which have been plugged by elevated borrowing domestically and abroad.
For example, total public debt rose to nearly Sh6.29 trillion in March 2020 from Sh5.81 trillion in June 2019, Sh5.04 trillion (June 2018), Sh4.41 trillion a year earlier, Sh3.62 trillion in June 2016, Sh2.83 trillion (June 2015), Sh2.37 trillion the year before and Sh1.89 trillion in June 2013.
Increased borrowing has seen Kenya generally commit about half of taxes to paying loans, leaving little cash for economic growth-stimulating projects such as roads, electricity connection, affordable housing and revamping of the ailing healthcare sector.
Amid slowing flow of taxes into the Exchequer, President Kenyatta announced last month Kenya had opened talks with some of its creditors with a view to restructuring some debt facilities to allow for repayment holidays.
This is aimed at freeing up some of the debt servicing cash to help in the fight against the death-threatening coronavirus.
“We’re in discussion with the largest economies in the world on the issue of suspension of debt for a period in order to allow us to spend more combating this pandemic,” Mr Kenyatta said in April.
Kenya’s access to cheaper international loans from multilateral lenders such as the World Bank Group's International Development Association (IDA) has reduced after the economy upgraded to lower middle-income economy in September 2014.
That has seen the country increasingly resort to expensive short-term commercial loans as well as a mix of concessional and semi-concessional loans from bilateral lenders such as China.
This is in addition to domestic borrowing through weekly auction of treasury bills (facilities which mature between three and 12 months) and monthly sale of treasury bonds.
"Going forward, we will borrow sustainably by making sure we always give priority to concessional borrowing, particularly from institutions like World Bank and African Development Bank," Treasury secretary Ukur Yatani said on April 28.
"We want to also discourage as much as possible borrowing domestically because we don't want to be seen to be competing in domestic market with the private sector."
Treasury statistics show domestic investors will pocket the bulk of debt repayments, which will rise from Sh515.50 billion budgeted for the current year ending June 2020 to Sh570.38 billion projected for next fiscal year starting in July and Sh617.25 billion the following year.
External creditors will, on the other hand, gobble up a projected Sh406.21 billion in 2021-22 fiscal year and Sh334.32 billion in 2020-21 year which starts in July from Sh253.35 billion budgeted in the current year.
Debt obligations to China, which accounts for a third of Kenya's foreign, are estimated at Sh83.41 billion this financial year, jumping to Sh95.08 billion in the year starting July and Sh120.01 billion in President Kenyatta's last year in office.
China, which lends to Kenya through China Exim Bank and China Development Bank, has in recent years come under increasing global pressure to take a haircut on some of the loans it had advanced to distressed countries in Africa.
The chorus has grown even louder amid the Covid-19 crisis which has exerted pressure on revenue of debtors such as Kenya.
Beijing has reportedly received a raft of debt-relief applications from countries hardest hit by coronavirus outbreak looking to renegotiate facilities, the Financial Times reported last week quoting policy advisers and bankers. The UK publication said China was looking at various options, including suspension of interest payments. The Treasury estimates Kenya's interest payments to China this fiscal year at Sh42.66 billion, falling to Sh33.05 billion next financial year and Sh31.22 billion the following year.
Kenya is also experiencing pressure from maturing short-term domestic securities, with Central Bank of Kenya (CBK), the government's fiscal agent, last month offering investors in maturing one-year T-bills an option to "switch" the cash to another facility.
Banks, fund managers and pension scheme trustees last year last year largely favoured investment in one-year securities owing to a drought in other short-term government debt facilities, piling pressure on the exchequer this year.
CBK Governor Patrick Njoroge said this was necessary because the Treasury was already ahead of its approved domestic borrowing target.
"We have been in discussion with some of large investors that we have because of a specific mismatch. When there are a lot of securities that are falling due, there's generally a match with a new security," Dr Njoroge said. "Those investors have an option to roll over. There's actually one large 364-treasury bill that's coming to maturity and we wanted to offer a sort of a possibility of other instruments like a long-term bond."