The government could be forced to tap more external concessional loans this year as it balances domestic and foreign borrowing, amid rising pressure on debt repayment, including a maturing Eurobond.
This comes even as the country’s debt stock rallies towards the 10 trillion mark, having hit Sh9.18 trillion at the end of January, up from Sh8.7 trillion as of September last year when the new government took over.
Kenya Revenue Authority is likely to miss its collection target for the year ending June 30 if the total receipts for eight months to February are anything to go by.
The Statement of Actual Revenues and Net Exchequer Issues by the National Treasury, for the period to February 28, shows the revenue agency has so far collected Sh1.23 trillion against a target of Sh2.1 trillion.
Bretton Woods Institutions led by World Bank have warned of an intensified debt crisis in developing countries.
The Kenya Kwanza administrations is implementing the former administration’s last budget for the financial year 2022/23 , whose planned expenditure (budget) rose to a record Sh3.3 trillion, with Sh2.2 trillion set to go in recurrent expenditure.
“Going forward, with limits to raising taxes and expenditure cuts, the country will need to access concessional financing and promote the development of debt markets,” National Treasury says in the Annual Public Debt Management Report.
This signals an aggressive courting of institutions such as World Bank, IMF and other development banks and multilateral funds that offer concessional finance, which is below market rate provided by commercial lenders.
Among the immediate headache is funding the country’s debut Eurobond, which is due in June next year.
The country is expected to set to pay more than $2 billion (Sh 267.2 billion) to investors in a bullet payment to retire the 10-year sovereign bond issued in 2014, when the former administration turned to commercial debt to fund budget deficits.
According to Treasury Principal Secretary Chris Kiptoo, Kenya is expected to repay Eurobond debts of Sh254.16 billion in 2024, Sh114.37 billion in 2027 and Sh127.08 billion in 2028.
During a meeting with the National Assembly’s committee on Public Debt and Privatisation in March , Kiptoo said the government will optimise the use of concessional external funding sources, lengthen the maturity profile of public debt through the issuance of medium to long-dated bonds and deepen the domestic debt market to be able to finance budget deficits.
Most of the external debt portfolio comprise loans on concessional terms while domestic debt has gradually shifted to medium to long term., Treasury data shows.
The average maturity period of public debt has lengthened in line with the Medium-Term Debt Management Strategy (MTDS).
Planned debt management operations to lower cost and risks have however not been fully implemented, Treasury says in its latest debt management report, pegging this to volatility in the global debt markets.
“The uncertainties created by the conflict in Eastern Europe led to disruptions of the key supply chains, triggering rise in prices particularly food and energy prices and tighter global financial conditions,” it adds.
The increase in public debt stock in nominal terms was mainly attributed to new borrowing for budget support, financing of ongoing and new development projects and exchange rate fluctuations.
The current financial year’s debt is building from the 2021/22 fiscal year, when external financing amounted to Sh327.1 billion, against a target of Sh545,2 billion.
The shortfall was mainly attributed to the limited amount of commercial borrowing (Sh124.3 billion) which the government was unable to mobilize sufficiently due to unfavourable market conditions.
The external disbursements comprised Sh92.6 billion Project Loans Appropriation-in-Aid, Sh175.8 billion program loans and Sh58.6 billion Project Cash Loans.
The external repayments amounted to Sh184.5 billion, resulting to a net external financing of Sh142.5 billion.
In the financial year 2021/22, a total of Sh1.28 trillion was paid towards the domestic debt maturities (9.8 percent of GDP).
Out of total domestic maturities, the Treasury bonds redemptions comprised Sh 155.3 billion while Sh1.1billion was attributed to the pre-1997 debt.
In the year under review, the payment of principal of external debt amounted to Sh184.5 billion against a projected amount of Sh202 billion comprising bilateral, multilateral and commercial loans.
This represented a growth of 43.9 percent from Sh128.3 billion in financial year 2020/21.
The projections of external debt maturities show that a total of Sh241.1 billion will be due in the current financial year ending June 30.
This is expected to go up to Sh475.5 billion, and Sh596 billion in the following two financial years.
President William Ruto’s administration has in recent months been keen on increasing tax revenues to fund government spending, in a move aimed at reducing borrowing.
Ruto has also assured the country will not default on its loans.
"We are not in that position that we can default and the people of Kenya can be rest assured we are not going to fail on our obligations," the President said during a recent media interview.
World Bank has however warned debt repayment has put the biggest squeeze on poor nations since the year 2000, with some at risk of defaulting.
Currency depreciations has compounded matters for many developing countries, among them Kenya, whose debt is denominated in US dollar.
There has also been one of the most internationally synchronised monetary and fiscal policy tightening the world has seen in 50 years, amid fears of a global recession.
Kenya is among countries that are heavily indebted with the debt stock at 67.3 per cent of GDP.
The country’s debt costs are projected to hit Sh1.4 trillion in the current financial year ending June.
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