The plan is to drastically reduce the amount borrowed commercially from external sources to just Sh50 billion in the next two fiscal years.
According to the Budget Policy Statement 2018/19, the Treasury targets to cut the total budget deficit to 6.0 per cent in the next fiscal year, from 7.2 per cent in the current year, falling to 3.0 per cent in 2021/22.
National Treasury is set to raise commercial financing from foreign sources to Sh288 billion in the next fiscal year, Sh38 billion more than in the current Budget, as total spending rises.
However, the plan is to drastically reduce the amount borrowed commercially from external sources to just Sh50 billion in the next two fiscal years. This is part of a plan to gradually cut the budget deficit that had gone beyond 8.9 per cent in 2016/17.
According to the Budget Policy Statement 2018/19, the Treasury targets to cut the total budget deficit to 6.0 per cent in the next fiscal year, from 7.2 per cent in the current year, falling to 3.0 per cent in 2021/22.
The total spending is planned to rise by 7.1 per cent or Sh165 billion to Sh2.488 trillion in the next fiscal year.
“The lower deficit reflects the projected completion of key infrastructural projects being implemented by the Government, enhanced revenue collection and prudent public spending,” says the BPS.
Some of the bilateral and even multilateral loans are commercial while others are concessional.
The Treasury said it will continue to diversify sources of revenue to include international capital markets principally for development financing. It has already used the sovereign bond and syndicated loan markets.
“The Government will continue to diversify the sources of financial resources over the medium term by maintaining presence in the international capital markets… Non-concessional and commercial external borrowing will be limited to development projects with high financial and economic returns,” says the current Medium-Term Debt Management Strategy (MTDS).
The commercial financing has been rising in the past few fiscal years, standing at Sh145 billion in the 2015/16 fiscal year before rising steadily to this year’s Sh250 billion and next year’s projected figure of Sh288 billion.
One of the reasons for the increase in commercial loans has been the money raised through a sovereign bond as well as Chinese loans – that were partly commercial – for building the standard gauge railway.
The paper states that only up to 10 per cent of the total borrowing will be fully incurred on commercial terms. Another 20 per cent of the loans will be on semi-concessional terms meaning that only part will be on commercial basis.
“The strategy comprises: 60 per cent external borrowing and 40 per cent domestic borrowing to finance the national government budget; Of the 60 per cent allocated to external borrowing, it will be comprised of 20 per cent on concessional terms, 30 per cent on semi-concessional terms and 10 per cent on commercial terms,” says the MTDS.
