Rotich defends new Eurobond issue to repay Sh77bn loan

Treasury secretary Henry Rotich. FILE PHOTO | NMG
Treasury secretary Henry Rotich. FILE PHOTO | NMG 

Treasury secretary Henry Rotich has defended the government’s decision to issue another Eurobond whose proceeds will partly be used to repay a Sh77.3 billion ($750 million) syndicated loan issued in 2015.

Mr Rotich, in an interview Wednesday, said the fresh Eurobond and the Treasury’s negotiations with international investors to delay debt repayments did not indicate that the government was struggling to service its loans. 

The Treasury says that it is considering tapping the international debt markets to either finance infrastructure developments or for “liquidity management”.

The rapid rise in Kenya’s public debt to more than Sh4.4 trillion at a time when the taxman is struggling to meet his targets has raised fears over sustainability of the loans.

A Reuters story on Tuesday quoted Mr Rotich saying that most investors in the syndicated loan had agreed to extend its maturity by six months from October this year to April 2018, meaning the fresh Eurobond could be floated before then.

Some 10 per cent of investors in the syndicated loan did not agree to the negotiated restructuring.

“We are not doing anything strange. We can’t just enter there (international market) and disappear until we pay the loan,” Mr Rotich said, adding that the Treasury still does not have a time line for the new bond issue.

Kenya issued a debut bond worth $2 billion in June 2014 that was also used to retire a $600 million syndicated loan, whose maturity had to be extended by three months, and other budgetary spending including infrastructure projects.

The main opposition party at the time, Cord, later claimed that proceeds from the Eurobond had been misappropriated and none were used as intended, a claim the government refuted.

Figures from Auditor-General Edward Ouko also showed that Sh215 billion of the Sh280 billion debt could not be clearly accounted for.

A prolonged electioneering period that threatened to turn violent after the Supreme Court annulled the August 8 vote has made it difficult for the government to focus on expenditure cuts required to check the ballooning public debt.

Lack of fiscal discipline during a politically charged 2017 has also made it hard for the Treasury to contain its expenses and meet its revenue targets.

A Budget Review and Outlook Paper (BROP) released in September showed that the level of public debt to GDP ratio was expected to rise to 59.0 per cent, from a previous target of 51.8 per cent.

Mr Rotich said the government was considering both local and international options of raising cheap funds to fill the financing gap in the budget.

“What we are saying is that it’s (Eurobond) an option for us to finance any infrastructure that we may want to do in this financial year or use it for liquidity management,” he said in an interview.

The BROP also showed that the country’s fiscal deficit target had been revised to 7.9 per cent in the 2017/18 fiscal year, from 6.2 per cent, after revenue collection fell 3.7 per cent short of target-- while expenses were higher than expected.

In a tweet late on Tuesday, President Uhuru Kenyatta indicated a lower fiscal deficit rate of 6.4 per cent, which Rotich clarified yesterday that it excluded the cost of repaying loans taken to finance construction of the Standard Gauge Rail (SGR).

“The 6.4 excludes SGR. If you include SGR it becomes 7.9 per cent.”