The government has been dealt a blow in its quest to ease future cash flow pressure after Members of Parliament rejected bid to create a special fund to raise cash for repayment of maturing debt.
The National Assembly Committee on Delegated Legislation rejected the Public Finance Management Guidelines of 2021, which sought to create a special fund for debt servicing, on grounds that the regulations lack the input of Kenyans.
Kenya’s total debt service to revenues increased to 57 percent in 2019 from 17 percent in 2012 due to an increased debt stock and changing terms on new loans including one-off repayment of syndicated loans and Eurobonds in 2019.
According to the Central Bank of Kenya (CBK), this trend is expected to reverse in the medium term due to improving terms on new loans, and the restructuring of external commercial loans that have heavy maturities and high interest cost.
The structure of Kenya’s external (public and publicly guaranteed) debt changed significantly between 2010 and 2020, with increased uptake of commercial debt to improve Kenya’s presence in the international financial markets to diversify Kenya’s sources of external financing.
According to a Business Daily, the Treasury had targeted utilising the fund to pay off maturing loans, buying back bonds when interest is low, and retire some of the debts earlier to avoid higher costs in the future.
“The Fund shall be used to cushion for amortization of liabilities arising from national government loans, redeem maturing …loans to alleviate rollover risks and facilitate debt restructuring and smoothening of maturity profile,” the Public Finance Management (Sinking Fund) Guidelines say.
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The Public Finance Management (PFM) Act 2012 requires the Treasury to get the green light from lawmakers to set up the “Sinking Fund”.
Currently, debt is paid from the Consolidated Fund Services (CFS), which also covers other obligatory payments such as pension and salaries for some independent constitutional officeholders.
But increased spending on debt payment has hurt Kenya’s thin revenues, squeezed funds available for development projects, and forced some State agencies to borrow to pay salaries, highlighting the burden of the fast-maturing debt on the economy.
Recent efforts to increase Kenya’s concessional public debt led to a 10.1 percentage points increase in the proportion of multilateral debt from 30.2 percent in June 2019 to 41.3 percent in June 2021.
For example, when Kenya secured a Ksh.352,01 billion (US$.3.2 billion) loan from China in 2014 to construct the Standard Gauge Railway (SGR) connecting Nairobi and the port city of Mombasa, critics termed the project costly and worried about its debt burden on Kenya.
The agreement was always deemed overpriced by independent observers and there have long been questions about the how the deal was structured.
But now in the middle of a growing global economic crisis coupled with coronavirus pandemic, those questions have become more pointed and urgent about the very financial viability of the project.
Seven years on now, the Central Bank of Kenya (CBK) Governor Dr. Patrick Njoroge has made it clear that the project has indeed pushed up the country’s debt burden.
Appearing before the Senate Committee on Finance and Budget on Wednesday, Dr. Njoroge noted that the SGR debt is around 11 percent of Kenya’s external debt.
The CBK Governor revealed that they were not involved in the SGR debt discussion.
“We were not involved in the SGR discussions,” said Dr. Njoroge.
“Even though the debt level is rising we should be able to manage it…we should accept that it is an individual decision,” CBK Governor Patrick Njoroge said.
There’s also the question of whether Kenya will be able to repay the Chinese loans which have topped Ksh.517,06 billion (US$4.7 billion) after the line was expanded in 2015 for another Ksh.165,04 (US$.1.5 billion) by 75 miles to Naivasha.
