Strict conditions reduce Kenya’s external commercial debt


Capital markets

Strict conditions reduce Kenya’s external commercial debt

The National Treasury Building in Nairobi on Sunday May 24, 2020. PHOTO | DENNIS ONSONGO | NMG

Kenya’s share of external debt owed to commercial lenders has fallen to 14% from 15.5% in the year to June 2022, reflecting the government’s difficulties in accessing international credit due to high interest rates. high interest.

The National Treasury canceled the issuance of a Eurobond and a syndicated loan earlier this year due to the current high cost of borrowing, with investors demanding rates of up to 22% at some point. to lend to the country.

This saw commercial lending rise from 1.195 trillion shillings to 1.181 trillion shillings over the 12-month period, according to the latest documents filed by the Budget Comptroller.

Lack of access to commercial loans has caused Kenya to rely on multilateral lenders such as the IMF and the World Bank for support, which has increased the share of their loans from 1.6 trillion shillings to 1.9 trillion shillings, or 22.8% of the total debt.

The government has also turned its eyes inwards, increasing domestic borrowing to 4.1 trillion shillings and narrowing the gap with foreign lending from 302.4 billion shillings in June last year to 2.3 billion shillings at the end of June 2022.

“As of June 30, 2022, outstanding public debt stood at 8.45 trillion shillings, of which 50.7% owed to external lenders and 49.3% owed to domestic lenders,” CoB Margaret Nyakango said.

“Total expenditure on public debt in the financial year 2021/2022 was 847.15 billion shillings compared to 765.91 billion shillings recorded in 2020/2021. The increase is attributable to the increase principal repayments and interest rates for domestic and foreign loans.

Treasury Cabinet Secretary Ukur Yatani earlier said Eurobonds had become very expensive following Russia’s invasion of Ukraine, which forced Kenya to reconsider issuing Eurobonds. a bond, which was to target $1 billion (120 billion shillings).

Kenya explored the possibility of raising a similar amount from a syndicate of banks, but that also fell through due to the high rates demanded by potential lenders.

The country has now turned to the IMF and World Bank which have provided Kenya with multi-billion shilling loans over the past two years, but which have also seen multilateral lenders influence the country’s economic policy.

The IMF had imposed several conditions on Kenya to be able to access the tranched loans, including reforms of state-owned enterprises, a special audit on Covid-19-related expenses and the declaration of assets by civil servants.

However, funding from concessional lenders is unlikely to be sufficient to cover the 280 billion shillings that are expected to come from external sources in financing the 845 billion shilling budget deficit for the current financial year.

The new administration therefore risks crowding out the private sector if forced to dive even deeper into the domestic lending market.

It also puts pressure on the Kenya Revenue Authority (KRA) to meet and possibly exceed the collection target for this year. The agency raised a record 2.031 billion shillings in the financial year ending June 2022, exceeding its revenue collection target of 148.9 billion shillings.

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