Kenya owes China Sh750b as appetite for debt surges
Lewis Njoka @LewisNjoka
Kenya owes China Sh750 billion to be paid at an average interest rate of three per cent, National Treasury Cabinet Secretary Ukur Yatani said yesterday.
This translates to 21 per cent of the country’s external debt making China the country’s leading bilateral creditor.
The loans were extended through Export Import Bank of China and China Development Bank.
Yatani who spoke when he appeared before the National Assembly Finance and Planning Committee to shed light on the country’s debt situation, however said the country has no intention to default on its debt despite harsh economic conditions occasioned by Covid-19 pandemic.
“Kenya has no intentions to default on the Chinese or any other loan,” he said, adding that debt default will limit the country’s future access to finance from both domestic and international financial markets.
Default, he added, will also undermine investor confidence and significantly harm the economy.
Yatani said Kenya’s total debt portfolio stood at Sh7.2 trillion as of September 20.
This is about Sh1.8 trillion shy of the Sh9 trillion debt ceiling imposed by the Public Finance Management Act (PFM) 2012.
Of the amount, Sh1.87 trillion was borrowed between February 1, 2017 and August 31 this year, to go towards financing capital expenditure and refinancing public debt obligations dues.
Since September, however, the Kenya has shown appetite for more loans with Bloomberg reporting last month that the country was seeking $2.3 billion (Sh253.6 billion) to support Covid-19 response.
The country’s total debt is evenly spread between external and domestic sources at Sh3.66 trillion (51 per cent) and Sh3.46 trillion (49 per cent) respectively.
Of the Sh3.66 trillion external debt, multilateral loans account for 39 per cent, bilateral 30 per cent while commercial debts account for 31 per cent.
On average, the external debt portfolio attracts a 4.2 per cent interest every year, with interest rates ranging between zero and 1.4 per cent for multilateral loans.
World Bank Group is the leading multi-lateral lender for Kenya accounting for 25 per cent of the multilateral loan.
External debt
Yatani said the country’s external debt, of which about 66 per cent is denominated in US dollars, was highly vulnerable to exchange rate risks, saying Treasury was seeking to match external debt mix with the country’s currency of export earnings to mitigate against currency fluctuations.
“The current Medium Term Debt Strategy is to increase the uptake of Euro denominated loans,” he said.
Additionally, the government plans to diversify sources of external debt financing and seek concessional loans with long repayment period years to lower the debt burden.
Also part of the country’s external debt is Sh169 billion credit guarantee the government has placed for various state corporations including Kenya Airways, Kenya Power, KenGen, Kenya Railways and Kenya Ports Authority.
The Sh3.46 trillion domestic debt, on the other hand, is comprised of treasury bonds and bills and attracts an 11 per cent interest every year.
Yatani said the country is seeking to move its domestic debt more towards treasury bonds, which take longer to mature, as opposed to treasury bills.
“The goal is to hold over 70 per cent of domestic debt in Treasury. Bonds to lengthen the maturity structure of debt to minimize settlement and rollover risk,” he said.
“Over the past five years, the holdings of Treasury Bills have been declining while that of Treasury Bonds has been increasing reflecting successful implementation of the Medium Term Debt Strategy,” Yatani added.
