Kenya Insights

Tag: The National Treasury

  • Kenya Kwanza: Debt Payments to Exceed Sh7 Trillion Over the Next Five Years

    Kenya Kwanza: Debt Payments to Exceed Sh7 Trillion Over the Next Five Years

    Kenya Kwanza administration has allocated a budget of Sh7 trillion to pay off debt during its first term, starting from July 1. This highlights the significant debt burden inherited from previous administrations.

    According to revised estimates from the Treasury, the cumulative cost of debt payments will amount to Sh7.071 trillion from the fiscal year 2023/24 to 2026/27. This indicates the impact of the heavy debt load.

    Spending on interest payments is projected to reach Sh3.42 trillion, while redemptions, which will likely be refinanced through new debt, are estimated at Sh3.65 trillion over the four-year fiscal cycle.

    Changes made in the second supplementary budget have increased the cumulative debt service costs, including the fiscal year ending on June 30, by a substantial Sh131.09 billion.

    Kenya Kwanza
    President William Ruto

    This reflects the impact of rising interest payments on external debt and redemptions over the medium term.

    Total debt service costs are expected to reach a record high of Sh1.802 trillion in the fiscal year ending June 2024, compared to the current amount of Sh1.385 trillion. This increase is primarily due to the redemption of a Sh279.7 billion ($2 billion) debut Eurobond, which matures on June 24, 2024.

    However, the debt service costs will gradually decrease thereafter, reaching Sh1.669 trillion in the 2024/25 fiscal year and Sh1.748 trillion in the financial year ending June 2026.

    Debt service costs in the 2026/27 financial year will amount to Sh1.768 trillion. Interest expenses will be Sh891.8 billion, and redemptions will be Sh876.5 billion.

    The majority of debt service costs are for repayments related to infrastructure projects carried out by the previous administration. The outstanding arrears for the Mombasa-Nairobi standard gauge railway project, for example, are Sh223.8 billion ($1.6 billion) as of June 30, 2022.

    These payments also include the redemption of a Sh125.9 billion ($900 million) Eurobond maturing on June 22, 2027. Additional debt service costs are due to persistent budget deficits, which require financing beyond domestic revenue.

    These upcoming interest payments are expected to put pressure on government revenues, consuming a significant portion of them.

    In contrast, the large redemptions will necessitate additional borrowing by the government to offset the arrears through refinancing.

    Kenya Kwanza
    National Treasury and Economic Planning Cabinet Secretary Njuguna Ndung’u.

    The Treasury plans to issue a new Eurobond to refinance the June 2024 maturity, and the process to settle the maturity has already begun.

    The Kenya Kwanza administration will seek financing to cover new deficits in subsequent budgets, starting with Sh718 billion in the new fiscal year.

    However, relying more on domestic funding in the fiscal cycle may affect the growth of private sector credit, as the government will be competing with businesses and households for bank loans.

    Net domestic borrowing is projected to be Sh586.5 billion in the 2023/24 financial year, with net foreign financing at Sh131.5 billion, representing an 18:82 mix compared to the improved mix of 48:52 at the end of June 2023.

    Despite the increasing debt service costs and persistent fiscal deficits, the government assures its ability to meet all maturities and interest payments. It aims to implement a fiscal consolidation policy primarily focused on expanding the tax base to generate higher tax revenues.

  • Kenya pays Sh1.7bn to bag foreign loans

    Kenya pays Sh1.7bn to bag foreign loans

    The Controller of Budget (COB) Mrs. Margret Nyakango has flagged the National Treasury for Sh1.65 billion paid to secure future loans arguing that borrowings should now be cancelled to ease the burden of payment on taxpayers.

    The amount is paid as commitment fees charged on borrowers for credit that has not been advanced as a way of guaranteeing that a lender will keep the funds. Nyakango told Parliament that the loans are being sought to undertake 17 projects including road construction,  expansion of Jomo Kenyatta International Airport (JKIA), power connections and construction of a dam to smoothen water supply to Nairobi and road construction.

    Treasury headed by CS Ukur Yatani paid the fees for loans to Chinese, Japanese and European banks at the end of June piling pressure on the country’s bulging debt which now stands at more than Sh7 trillion.

    Nyakango’s red flag on loan applications comes at a time Kenya’s maturing debt has piled pressure on the country’s expenditure plans and sliced funds meant for development projects.

    “We recommend that these loans should be cancelled and this will reduce the loan book balance and consequently save taxpayers payments on the commitment fees,” Nyakango said.

    Controller of Budget Margaret Nyakango [p/courtesy]
    Her call also comes after Yatani’s docket had committed Sh225.08 million to secure  loans meant for funding the installation underground power transmission lines in up market estates of Westlands, Kileleshwa, Riverside and Parklands. The Treasury also committed Sh21.447 million to secure loans for construction of a second runaway at the JKIA.

    But on top of the list are fees to secure loans for an underground electricity transmission line to State House, Ngong Road and neighboring areas at Sh393.8 million and Sh304.58 million for construction of the second phase of Ruiru dam.

    Mrs Nyakango blamed the ineptitude of government agencies tasked with implementing the projects as the reason for the hefty commitment fees as she urged the State to ensure all projects are executed shield Kenyans from losing funds.

    Commitment fees hugely contribute to the fees the country’s growing loan repayment burden. More debts are also falling due to deficits in the  budgetary allocations as the pandemic continues to ravage the economy.

    Kenya secured deals to suspend debt service with rich countries and other creditors including China in January and has budgeted Sh1.169 trillion which is 36.6% towards debt repayment in the year to June. The amount represents the highest component of spending for the financial year.

     

     

  • Yatani goes for Sh60 billion loan as Kenya’s debt piles

    Yatani goes for Sh60 billion loan as Kenya’s debt piles

    The National Treasury is going for a Sh60 billion loan from local investors to fund infrastructure development after the country’s debt piled to Sh7.35 trillion in January this year, down from Sh7.28 trillion last December.

    The debt is still expected to pile further if the treasury succeeds to secure Sh262 billion from the International Monetary Fund (IMF) in the current financial year ending June.

    Projections are already showing that Kenya will borrowed close to a Sh1 trillion by this financial year but that will depend on whether part of the IMF funds will be used to refinance some of the maturing external loans.

    Treasury CS Ukur Yatani, he defends over borrowing [p/courtesy]
    The Central Bank of Kenya (CBK) noted in it’s prospectus that the bond will be an 18th-year old paper whose interest rate will be determined by the market.

    The move to borrow from local investors comes after government borrowed up to Sh407.8 billion from the market by March 19, including commercial banks, pension funds, insurance firms and parastatals.

    But the new infrastructure bond and the stock of domestic bond will shoot to Sh467.8 billion should CBK get sufficient subscribers. Experts argue that over subscription of the bond can allow CBK to borrow more than Sh60 billion in the current FY ending June.

    The Ukur Yatani led docket is going for more loans despite when it vowed to stay away from expensive commercial loans. The National Treasury has also hinted that Kenya will return to the Eurobond market to borrow at least Sh124 billion by end of June 2022 to offset part of the principal repayment of Sh351 billion..

    Kenya has already received over Sh500 billion from multilateral institutions as IMF, African Development Bank and World Bank meaning it will have  to shop for other sources to fund a Sh3.01 trillion budget.

    Director-General for Public Debt Management at the Treasury Haron Sirima said Kenya will have to access international markets for loans to support the budget and pay expensive loans that will soon be due.