Acting Treasury Cabinet Secretary Ukur Yatani when he appeared before the Senate Finance committee on November 26, 2019 over pending bills
ON THE SPOT: Acting Treasury Cabinet Secretary Ukur Yatani when he appeared before the Senate Finance committee on November 26, 2019 over pending bills

Kenya’s public debt continued surging in 2019, crossing the Sh6 trillion mark in July, according to the Central Bank of Kenya.

The country’s total debt is likely to close the year at current Sh5.9 trillion, with the domestic one at Sh2.8 trillion and external loans at Sh3.1 trillion.

According to analysis by the Parliamentary Budget Office, public debt it is projected to approach Sh 6.5 trillion at the end of 2019.

This trend is however expected to ease in the second half of the financial year if the Debt Policy and Borrowing Framework unveiled by acting Treasury Cabinet Secretary Ukur Yatani in November is successful.

For instance, the Treasury CS will delegate operational decisions on borrowing and debt management to the Public Debt Management Office (PDMO) to be created.

Furthermore, there will be a Government Securities Auction Committee (GSAC) to review and approve auction results.

Central Bank of Kenya has been the sole decision maker on government securities including announcement of weekly results.

The National Treasury also managed to convince Parliament to cap public debt at an absolute figure of Sh9.1 trillion by 2023, a departure from 50 per cent to GDP threshold that the government has failed to keep.

This is expected to limit the country’s debt appetite. Even so, experts have warned that the limit is too high and gives the government a leeway to gobble up at least Sh1 trillion every year until President Uhuru’s final term comes to close.

The exchequer is also finalising the External Loans Contracting Manual, perhaps to tighten the nose on expensive dollar denominated commercial loans that currently account for 60 per cent of all interests to be paid on the external debt valued at Sh3.1 trillion.

In May, the National Treasury went for the country’s third Eurobond worth $2.1 billion (Sh210 billion), less than a year after it had secured $2 billion (Sh200 billion) in two equal tranches of Sh100 billion in 10 and 30-year tenors in February last year.

Treasury used Sh75 billion or 35 per cent of the money to service part of the inaugural sovereign bond taken in 2014, in a classic debt trap scenario of borrowing from Tom to pay Peter.

The high borrowing especially to fund infrastructural projects continued to elicit harsh public criticism, with economic scholars like David Ndii questioning feasibility of projects initiated especially the standard gauge railway (SGR).

Others like the Institute of Economic Affairs (IEA) chief Kwame Owino, Johson Nderi and Mihr Thakar appealed to the government to go cut on rising annual budget plans, shun expensive short term external loans and restructure expensive ones.

In July, the World Bank raised the alarm over the high cost at which Kenya and other African countries were borrowing commercial loans, warning of debt stress if the loans were not invested in productive projects.

“If a country wants to avoid a debt crisis, you need to make sure that the cost of borrowing is lower than the return on investment,” World Bank vice president for Africa Hafez Ghanem said moments after a meeting with Uhuru at State House.

Last month, the International Monetary Fund warned that Kenya’s ballooning debt could push it into a “high distress” zone alongside other Sub-Saharan African countries facing a similar situation.

The cautions were delivered as the country was said to be lobbying for 44 loan agreements valued at about $4.1 billion (Sh4.182 trillion) with 15 lenders, including the AfDB, China, Japan and the World Bank.

In September, credit rating firm Moody’s threatened to further lower the country’s credit worthiness currently at B2 stable, citing a high debt burden and poor revenue collection.

“Kenya’s high debt burden and poor revenue collection performance and susceptibility to risk stemming from government liquidity risk piles pressure on the country’s ratings,” Moody’s said.

Kenya’s dilemma of managing the runaway public debt is set to roll over in 2020 as the government confronts the reality of maturing loans.

For instance, loan repayments to China will more than triple in the year ending June 30, 2020 as the five-year grace period that Beijing extended to Kenya in May 2014 for the standard gauge railway funds comes to an end.

According to Treasury, Taxpayers will pay Sh82.85 billion to China, Sh26.6 billion more compared to what was paid in 2018-19.

This is expected to further rise to Sh95 billion in 2020-21 and Sh120.12 billion in 2021-22.

The government is also expected to pay billions for a number of local bonds and bills maturing next year.

Eyes are now on acting Treasury CS Ukur Yatani who has promised to monitor, limit and effectively restructure the country’s loans to sustainable levels.