Cost of Kenya's debt increases by 14pc

The Treasury says its priority remains to attract concessional loans for key energy and infrastructure projects. FILE 

By GEOFFREY IRUNGU

In Summary

• A new IMF report shows that Kenya’s Sh1.8 trillion public debt is still sustainable and even allows for the issuance of a sovereign debt.

Kenya will pay Sh120.471 billion in interest on its public debt in the next financial year, a 14.9 per cent increase from this year, the Division of Revenue Bill shows.

This will be over and above the payment of the principal which will amount to Sh212.515 billion, 7.4 per cent higher than in the current financial year, the bill shows.

A new IMF report, however, shows that Kenya’s Sh1.8 trillion public debt at about 43 per cent in present value terms — time value of money theory says money borrowed today has a higher value in future — is still sustainable and even allows for the issuance of a sovereign debt.

“The dynamics for public debt are now more favourable than under the last debt sustainability analysis. At 43 per cent, the public debt-to-GDP ratio in 2012 was lower than the originally projected 48 per cent,” says the IMF report.

There have been fears that a huge public wage bill, county government and infrastructure spending would increase State spending, requiring further borrowing.

“The public debt-to-GDP ratio has declined, despite the large budgetary costs of implementing the new Constitution, preparing for the March elections, and the recent wage increases in the civil service,” said the Treasury.

“The Debt Sustainability Analysis shows that Kenya remains at a low risk of debt distress, both external and public debt,” said the IMF.

In an agreement with the IMF, the State has committed itself to ensure that debt remains sustainable.

“We will be updating our Medium-Term Debt Management Strategy that ensures public debt Sustainability,” said the Treasury in the Letter of Intent that spells out what government is ready to commit in an agreement with the IMF.

(Read: Kenya’s public debt is sustainable, says World Bank)

The Treasury said there is an ongoing reorganisation of the National Treasury with a view to improving “the monitoring of contingent liabilities from State-owned enterprises, semi-autonomous government agencies, and the newly created counties.”

The Treasury said its priority remained to attract concessional loans for key energy and infrastructure projects and to limit borrowing on commercial terms to viable projects that can generate a cash-flow sufficient to finance loan repayments.

It reiterates plan to issue a sovereign bond to clear the syndicated loan it contracted last year — and which is a bigger burden to repay because it is for a short period to May 2014.

“We plan to issue a sovereign bond in 2013/14 to repay the syndicated loan we contracted in May 2012,” said the Treasury.

In the short term, through CBK-Treasury co-ordination, the government pledged to “ensure that redemptions and new domestic borrowing requirements are fully met through the sale of government securities.”