Commercial banks have overtaken the World Bank Group’s International Development Association as Kenya’s biggest external creditor, underlining the continued reliance on expensive commercial loans to bridge the budget deficit.
Fresh data released by the Central Bank of Kenya shows the government owed foreign commercial banks Sh594.1 billion by the end of March, a 65 per cent jump from Sh360.2 billion a year earlier.
This is Sh89.4 billion more than IDA’s Sh504.7 billion, which represents an increase of 6.5 per cent year-on-year from Sh473.8 billion.
“Kenya continues to record a build-up of commercial and semi-concessional borrowing since her elevation to a low middle-income economy status in September 2014,” the CBK said in the quarterly Economic Review report for the third quarter of 2016/17 that closed on June 30.
Kenya rebased her economy in 2014 that increased the GDP by 25 per cent, moving the country from low-income status to lower middle-income.
This has disqualified the country from concessional loans it enjoyed from the IDA — the World Bank’s arm which gives concessional loans and grants to poor countries.
IDA, however, remains the biggest source of multilateral debt which stood at Sh806.9 billion in March 2017, compared to Sh766.6 billion the year before. Total external debt stood at Sh2.1 trillion at the end of March, a 25.8 per cent rise from Sh1.67 trillion a year earlier.
The increase was largely driven by commercial banks and Chinese loans.
China advanced Kenya Sh101.65 billion between January and March to go into completion of the Mombasa-Nairobi Standard Gauge Railway, start the second phase of the SGR to Naivasha, Olkaria geothermal power project and Nairobi Southern by-pass.
“External debt accumulation during this quarter was mainly on account of disbursements from the Chinese government ($986.9m or Sh102.4bn) and commercial loans from the syndicated loan ($800m or Sh83bn) and the Preferential Trade Area and African Export Import Bank ($450 million or Sh46.7 billion),” the CBK said.
In the 2017/18 fiscal year, the budget deficit stands at Sh524.6 billion, equivalent to six per cent of GDP.
It is expected that the deficit will be financed through external borrowing of up to Sh256 billion, and domestic borrowing worth Sh268.6 billion.