Capital Markets

Treasury eyes long term, cheaper debt

National Treasury
The National Treasury building in Nairobi. FILE PHOTO | NMG 

The Treasury plans to restructure public debt to increase maturity period and also cut the costs, the draft policy statement for the next national Budget says.

The move is also expected to address Kenya’s increased risk of debt distress after the International Monetary Fund (IMF) recently said it had risen from low to moderate because of the higher interest rates associated with refinancing.

The Treasury sees the change in debt distress risk as only temporary or short-term as it expects the restructuring strategy will work though.

Currently, nearly 40 percent of domestic debt is in short-term securities contrary to the policy of having it at 30 percent.

“Kenya’s risk to debt distress has been raised from low to moderate on account of refinancing risks on external debt.


“This is expected to be short term as the government continues with its fiscal consolidation plan and implements the government liability management strategy so as to restructure short-term commercial loans by replacing them with long-dated maturities,” said the Treasury.

“The liability management strategy also aims at limiting non-concessional loans to projects with high economic and social returns to stimulate growth and exports which will improve the debt sustainability ratios,” it added.

The State’s plan also comes against a background of advice from various quarters, noting that Kenya had rapidly increased its debt load as well as raised the risk that comes with possible depreciation of the local currency. The shortened maturity profile makes the debt expensive to repay.

Echoing a recent call by the Central Bank of Kenya, economic and financial advisory firm Stratlink Africa said in a new report that a restructuring of the debt would tame the expenses associated with its repayment.

“Interest arrears have gone up since the incumbent came into power with the vast majority of these payments going to private creditors who generally are costlier,” said Stratlink Africa in a report.

“The data reinforces the Central Bank governor’s recent call to restructure the nation’s debt portfolio to substitute expensive debt with cheaper sources.”