Kenya’s public debt surges to Sh1.9 trillion

Kenya’s public debt has surged to Sh1.9 trillion, indicating the likelihood that it will touch the Sh2 trillion mark before end of the current financial year going by Treasury’s borrowing plan which includes issue of a $1 billion Eurobond.

According to the Treasury’s latest Quarterly Economic and Budgetary Review report for the fourth quarter 2012/13, the rate of increase in domestic borrowing outpaced external borrowing.
Commercial banks remained the biggest lenders to government with funds worth Sh527 billion by June 2013.

“Gross public debt increased from Sh1.633 trillion as at end of June 2012 to Sh1.894 trillion by June 30, 2013, comprising of 44.5 per cent external and 55.5 per cent domestic. Net public debt increased by Sh249.6 billion over the same period. The overall increase was attributed to net increase in both domestic and external borrowing,” said Treasury in the report dated August 2013.

The rapid increase in public debt could erode Kenya’s sovereign rating, especially if it is not supported by a proportionate growth in the size of the economy.

A huge public debt burden could also put the government under pressure to raise its borrowing, especially from the domestic market, to cover for the increased expenditure on devolution and the rising wage bill, with the risk of crowding out the private sector.

Kenya spent Sh284.11 billion paying off public debts in the 2012/2013 financial year, according to disclosures made by Treasury secretary Henry Rotich in a gazette notice published on August 2.

External public debt increased in the one year from June 2012 to June 2013 by Sh55 billion ($613 million), from Sh800 billion ($9.195 billion) to Sh855 billion ($9.807 billion). This comprised debt owed to bilateral lenders (30.5 per cent), multilateral lenders (60.7 per cent), commercial banks (7.0 per cent) and suppliers’ credit (1.8 per cent).

In the intervening period from end of June, Central Bank of Kenya says that gross government domestic debt increased by Sh28.3 billion from Sh1.051 trillion to Sh1.079 trillion on August 8, 2013. The stock of domestic debt stood at Sh858.8 billion in June 2012.

The Sh28.3 billion increase takes government domestic debt to at least Sh1.92 trillion when added to the figures as at June 30. However, the cost of borrowing from the domestic market has slowed down compared to the same period in 2012, with Treasury recording lower interest repayments since June 2013 compared to the same duration in 2012.

“Cumulative interest and other charges on domestic debt during the week ending August 8, 2013 amounted to Sh3.5 billion compared with Sh8.1 billion during a similar period of the fiscal year 2012/13,” said CBK in its most recent weekly bulletin.

This is partly due to lower borrowing rates and lower interest rates on government securities when compared to 2012. High expenditure on debt and other recurrent bills forced the Treasury to exceed its borrowing estimates, especially from the domestic market.

“We expect inflation to remain elevated in the near term as government spending accelerates owing to increased funding needs for counties. We have also noted that the government has in the last two weeks increased its overdraft with the Central Bank by Sh8.5 billion,” said risk and research firm Stratlink Africa in their August economic review on Kenya released last week.

Treasury also projected in the latest annual debt report which was prepared by former Treasury permanent secretary Joseph Kinyua for the period up to June 2012 that Kenya’s public debt will hit Sh2.4 trillion in the next three years.

Despite of the debt increase in monetary terms, the debt to GDP ratio is projected to reduce to below 45 per cent.

“As a proportion of GDP, public debt in nominal terms is projected to decrease from 49.7 per cent in June 2012 to 43.9 per cent in June 2016. This is in line with government strategy of reducing debt to GDP (ratio) to below 45 per cent in the medium term,” said Mr Kinyua in the report.

[email protected]