Kenya’s stock of public debt went up by Sh127 billion in March as the country grapples to contain the coronavirus pandemic with more external loans.
Kenya’s total loans now stand at Sh6.28 trillion after an addition of Sh95 billion worth of foreign loans and Sh32 billion of domestic debt. It is the first time in the current financial year that external debt has expanded by a bigger margin compared to domestic debt.
This is in line with National Treasury Cabinet Secretary Ukur Yatani’s policy that aims to shift the country from expensive commercial loans and it is happening when Kenya has greatly benefited from debt repayment suspension from official bilateral lenders.
Kenya should save nearly Sh71 billion from the debt service suspension by G20 and member states.
The state will use the money to strengthen the health system and cushion the vulnerable population as the Ministry of Finance is expected to resume repayment of bilateral loans early 2021, with the debt moratorium expiring at the end of this year.
By the end of February, Kenya’s public debt stood at Sh6.16 trillion. and the beginning of April the World Bank Group Board of Directors approved the disbursement of Sh5 billion to beef the country’s response to COVID-19 pandemic under the Kenya Covid-19 Emergency Response Project.
Kenya is also expecting another Sh75 billion from the World Bank to cushion against the crippling effects of the pandemic, including job losses.
But the level of the debts are expected to change with the coronavirus crisis that has seen the state request up to Sh122 billion from the World Bank and International Monetary Fund.
It is the first time in history that the domestic debt increased the most as Treasury struggles to move away from expensive commercial loans that have plunged the country into a financial crisis.
After a mini-budget was tabled in Parliament on Tuesday last week, the government will now fork out a total of Sh696.5 billion in both principal and interest of debt by the end of June.
A category of external debt classified as “New Loans 1” registered the biggest drop in interest payments of upto Sh40 billion which the Treasury will use to speed up payment of interest for last year’s Sh210 billion Eurobond that Kenya was to begin servicing after the current financial year.
Repayment of China’s Sh33.6 billion that was used in the construction of Standard Gauge Railway which was to be made before end of June was reduced by Sh10.5 billion and the country is now expected to pay Exim Bank of China Sh23 billion.
The debt that Kenya has borrowed over the last eight years has been spent in infrastructural development, especially the bilateral loans from China but Kenya has also tapped into the international capital market, taking dollar-denominated sovereign bond for refinancing and supporting the budget.
More than half of Kenya’s debt is from foreigners, and a big chunk of the loans is commercial debt including sovereign bonds. Institutions as World Bank, International Monetary Fund (IMF) and the African Development Bank also hold a good chunk of the external loans.
The broke government has appealed to the development agencies as the virus continues to ravage the country’s health and economic fronts.
Kenya is staring at an eminent slowdown in economic growth this year which the Central Bank of Kenya’s Monetary Policy Committee has scaled down to 3.4 %, up from an initial forecast of 6.2%.
The IMF has projected a slower growth of 1% but expects it to shoot up next year. This will be the slowest growth since 2009 when it grew by 2.7% as a result of post-election violence in the previous year and a global recession.