Former governor of Tanzania’s central bank Benno Ndulu has advised the Kenyan Treasury to only go for longer concessional debt repayment terms going forward.
He warned that hefty repayments linked to shorter-term borrowing could deny taxpayers value for money invested in mega projects, adding that Kenya is not at risk of debt distress.
Kenya has in the past four years borrowed billions of shillings to finance mega public infrastructure, including the ongoing construction of the standard gauge railway (SGR) line, power generation and road projects.
“Some debts start getting repaid even before investment is complete. This is particularly the case for debt contracted in the capital markets — usually medium term in maturity. This mismatch in timing leads to a ‘solvency’ risk — no revenue available to service the debt,” said Prof Ndulu.
The Treasury recently shrugged off a ratings downgrade and loss of access to an IMF standby credit facility to raise a Sh202 billion ($2 billion) Eurobond in what the government said was a show of confidence in Kenya’s credit worthiness.
“This is particularly troublesome if debt has to be rolled over at higher cost,” said Prof Ndulu. He spoke at the University of Nairobi when he presented a public lecture in honour of Prof Francis Mwega on the conduct of monetary policy in East Africa.