- Kenya’s rising debt obligations have failed to reduce the debt that currently stands at about $82.2 billion.
- Service costs went up from 58% after the government paid $2 billion Eurobond.
- Sovereign bond-holders accounted for $6.6 billion of the external public debt stock.
The National Treasury has laid bare the pain awaiting Kenyans in repaying loans borrowed from external lenders and domestically. Fresh data tabled in Parliament reveals that taxpayers will dig deeper in their pockets in the next financial years to repay loan obligations.
Details show that for every $0.78) Sh100 the government collects, $0.53 (Sh68) goes to servicing the $82.2 billion (Sh10.6 trillion) debt pile reported as of June 30, 2024. The treasury revealed that the country’s debt stock increased by $2.3 billion (Sh303 billion) compared in the year ended June 2024 compared to a year ealier. Currently, Kenya’s debt stock is projected to hit $100.7 billion (Sh13 trillion) by June 2028.
It said the service costs went up from 58 per cent last year after the government paid $2 billion (Sh259 billion) Eurobond. It has also emerged that taxpayers forked about $12.4 million (Sh1.6 billion) as commitment fees for loans it had borrowed yet was not ready to use.
Last year, taxpayers paid about $10.8 million (Sh1.4 billion) for loans taken but not disbursed to the respective agencies that should utilise the borrowings. Despite the assurances by Treasury that the debt situation would improve, the 2024 public debt report shows it would cost as much as $17.8 billion (Sh2.3 trillion) to service debt.
Interest payments alone are projected to cost well above $7.7 billion (Sh1 trillion) in the next three financial years.
“Over the medium term, domestic interest payments as a share of GDP ($124 billion or Sh16 trillion) is projected to remain above three per cent while external interest payments are projected at about one per cent,” the report reads.
“In nominal terms, total interest payment is projected to increase to $8.4 billion (Sh1.079 trillion) in the financial year 2027-28 from $6.5 billion (Sh840 billion) in the FY 2023-24 majorly driven by domestic interest payments,” Treasury said.
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Kenya’s rising debt obligations
The projected increase in repayments means that Kenyans will not enjoy just yet, if the recent downgrade by credit firms is anything to go by. The country is still staring at a fundraising nightmare from the international markets after global credit ratings agency Fitch, downgraded Kenya’s sovereign rating to “B-” from “B”.
Ratings giant Moodys had also moved from B3 rating, whereby the country’s debt obligations are speculative and subject to high credit risk, to Caa1 rating, whereby the obligations are poor and subject to ‘very high credit risk.’ Moody’s attributed the downgrade to Kenya’s inability to effect fiscal consolidation measures that would lower the risk of defaulting.
The downgrades put Kenya at a heightened risk of losing the attractiveness of the international lenders after the government backtracked on key revenue measures following protests that gripped the country in June and July.
But according to the debt analysis report, World Bank remains the country’s top lender with fresh National Treasury details showing its size has expanded to about $12.4 billion (Sh1.6 trillion). The latest data from the Treasury shows that World Bank’s share accounted for 30 per cent while International Sovereign Bond (ISB) holders and China were among the major external creditors.
Sovereign bond holders accounted for $6.6 billion (Sh854 billion) of the external public debt stock whereas China’s lending stood at $5.7 billion (Sh737 billion) as of June 30, 2024. The details could cast light on how Kenya has been attracting more billions from the West since President William Ruto assumed office.
The data shows that taxpayers owed Africa Development Bank $3.9 billion (Sh508 billion) and $3.3 billion (Sh421 billion) to the International Monetary Fund (IMF). Japan and France emerged as the bilateral lenders with high amounts at $1.1 billion (Sh142 billion) and $744 million (Sh96 billion) respectively as of June 30, 2024.
United States, which President Ruto has toured more than four times since taking over, has lent Kenya a total of $310 million (Sh40 billion). Treasury revealed that Italy, which is also pursuing dam contracts in the country, lent the country $248 million (Sh32 billion).
Locally, commercial banks are owed the highest amount at $18 billion (Sh2.36 trillion), followed by trust and pension funds at $12 billion (Sh1.55 trillion) out of the $41.8 billion (Sh5.4 trillion). The government had borrowed $1.3 billion (Sh170 billion) from Central Bank of Kenya, $2.9 billion (Sh379 billion) from insurance companies, and $7.3 billion (Sh943 billion) from ‘other investors’.
The report signed by Treasury Cabinet Secretary John Mbadi states that the share of debt to the country’s wealth would decline. “Total public debt as a share of GDP is projected to decline in the medium term. In the financial year 2027-28, total debt to GDP is projected to decline to 53.7 per cent from 65 per cent in 2023-24,” the statement reads.
The government, during the year under review, contracted 36 new external loans of $6.95 billion (Sh897 billion), largely from multilateral lenders, dashing hopes for any reprieve. Several parastatals also borrowed $604.6 million (Sh78 billion) which is not guaranteed by the National Treasury.
Among them are loans borrowed by Kenya Power ($170.5 million), KenGen ($77.5 million), Kenya Ports Authority ($48.8 million), KAA ($77.5 million), National Oil Corporation ($77.5 million), NCPB ($31 million), New KCC ($11.6 million), JKUAT ($17.8 million) among others.
The government, it has emerged, has lent about $9.3 billion (Sh1.2 trillion) to various state agencies, some of which have challenges making repayments. Arrears from the loans amounted to $2 billion (Sh266 billion), of which $1.3 billion (Sh167.5 billion) related to Kenya Railways Corporation SGR project “which is yet to be serviced”.
SGR arrears accounted for 62 per cent of the total arrears, while the water sector had Sh34 billion unpaid as water companies are not remitting funds to water agencies. But, the Treasury says there is no cause for alarm, citing looming reforms in the management of public debt.
Treasury said the public debt office has prepared sinking fund regulations, whose approval would ensure cash is available to meet debt obligations. Kenya is also seeking to diversify borrowing sources saying it would float more flexible and cost-effective financing solutions.
This is after the government borrowed 73 per cent of its deficit from the local market despite an increased threat of crowding out local borrowers.
The government had through the 2023 Medium-Term Debt Management Strategy (MTDS) announced a guideline on how it was going to finance, its borrowing which was to comprise 50 per cent from the local market and 50 per cent external borrowing.
Read also: Kenya’s Parastatal Set for Privatisation Declared Insolvent Over $71m Debt
Borrowing deviated from set plan
However, actual borrowing in the past one year deviated from the plan, with 73 per cent sourced domestically and only 27 per cent externally, instead of the targeted 50:50 split. “The actual net domestic financing to external financing was 73:27, deviating from the optimal strategy. The deviation was partly on account of limited access to external financing,” the report by treasury reads in part.
Increased local borrowing by the government and high interest saw, loans by commercial banks fall by $1.2 billion (Sh158.2 billion) in the first six months of 2024, according to disclosures by the Central Bank of Kenya (CBK).
[1 Kenyan Shilling (Sh) equals 0.0078 US Dollar]
