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Government Borrowed Ksh125 Billion In Three Months To Service Existing Loans

[IMAGE/ COURTESY]

The government borrowed Ksh125 billion between January and March, to service existing loans that had reached maturity.

The medium-term syndicated loans are meant to cover a total of Ksh364 billion reaching maturity in June, meaning that the government might be forced to borrow more before June.

“We reduced debt by paying off an already existing debt and took a fresh loan; so no change in debt stock to the extent of the maturing loan repaid. This is called liability management in international finance circles,” said Treasury CS Henry Rotich, as quoted by a local daily.

Kenya has been on a borrowing spree, with experts questioning her ability to repay the loans which is impaired by falling revenue collections.

Currently, Kenya’s public debt stands at Ksh5.2 trillion, a 68.9 percent of the Gross Domestic Product (GDP) which is estimated at Ksh7.6 trillion.

An estimated 70.6 per cent of the external debt comprises loans from China.

“There is a high rate of accumulation of new debt and the debt service to revenue ratio threshold has been breached implying that any shocks in revenue collection could affect the country’s ability to repay the debt,” says the Institute of Economic Affairs in a report titled Trends in Kenya’s Public Debt.

Read: FlexiAir Threatens To Sue Joho, Kirinyaga Women Rep Ngirici Over Ksh6 Million Debt

Interest payment on loans is expected to increase by 31 per cent to Ksh400 billion ($4 billion) in 2018/19 from Ksh305 billion ($3.05 billion).

Last week, President Uhuru Kenyatta was in China for an alleged Ksh386 billion loan for the Naivasha-Kisumu Standard Gauge Railway (SGR), but the move flopped. The government was quick to refute the claims, saying that the loan was not part of the agenda.

The government expenditure, which consumes a bigger chunk of the country’s budget, stands at 27 percent of the GDP, and has been steadily on the rise.

As compared to her East African peers, Kenya’s debt is considered too high.  Tanzania’s debt stands at 37.4 per cent of her GDP, Uganda at 38.6 per cent, and Rwanda at 40.2 per cent.

Most of the debt acquired in Kenya is said to be misused or spent on projects that can barely repay the loans.

For instance, in the 2018/2019 fiscal year, Kenya’s external loans were channelled into the energy, infrastructure, and ICT sectors (60 per cent), environment protection, water and natural resources (13 per cent), health (6 per cent) while national security and education each received a paltry four per cent of the funds.

This means that Kenya might never get money to repay the loans from the projects she invests in.

This leaves the government with only two options, turning to revenue collected or borrow to pay.

With revenue collection proving a tall order for the government, the only option remaining is borrowing to pay, meaning the public debt will keep ballooning due to accumulation of interests.

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Written by Francis Muli

Follow me on Twitter @francismuli_. Email francis@kahawatungu.com

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