Public debt rises to 57 per cent of GDP

Money Markets

 

National Treasury Cabinet secretary Henry Rotich. PHOTO | FILE  

By GEORGE NGIGI

In Summary

• The debt is expected to rise faster on factoring in the huge bilateral loan agreements signed with the Chinese government to finance infrastructure projects, including the standard gauge railway.

Public debt jumped nearly half a trillion to Sh2.3 trillion, the equivalent of over half the country’s output, driven by new government borrowing.

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Data from the Treasury shows the total debt rose to 57 per cent of the GDP in June from 49 per cent a year earlier after issuing of the sovereign debt.

The debt is expected to rise faster on factoring in the huge bilateral loan agreements signed with the Chinese government to finance infrastructure projects, including the standard gauge railway.

“The gross public debt increased by Sh476.1 billion from Sh1.89 trillion as at end of June 2013 to Sh2.37 trillion. The overall increase is attributed to increased disbursements from external creditors and exchange rate movements,” said National Treasury quarter four Economic and Budgetary Review.

Analysts said concern is not mostly on the country’s ability to service the debt rather the shift to higher external debt.

“A lot of the debt is on concessionary terms but it does raise concern on balancing of the debt,” said Alex Muiruri, head of fixed income at Kestrel Capital.

External debt contributed 45.8 per cent, with the local market providing 54.2 per cent of the stock.

READ: IMF, World Bank raise the red flag over Kenya’s debt

The Treasury’s target has been to cap external borrowing at 30 per cent, but it has recently argued foreign lenders offer friendlier terms. The government has also been under pressure to reduce its participation in the market to create room for interest rates drop.

The State raised Sh170 billion through a sovereign bond in May, which helped it settle an external syndicated loan of Sh51 billion taken last year.
Notably, domestic interest payment last year totalled Sh119.2 billion, higher than the target of Sh110.2 billion.

Sh12.7 billion was paid for external debt against a target of Sh14.9 billion.

Big external debt proportion poses the risk of weakening the currency, which could prompt CBK to raise interest rates.

Local rates have been on the decline since the successful issue of the Eurobond, with the indicative 91-day Treasury bill currently at 8.2 per cent down from 11.4 per cent at the end of June.

The Treasury has, however, continued to participate in the domestic market, with local debt falling only by Sh3 billion. The marginal drop is in spite of the Treasury paying Sh26 billion to reduce its overdraft at CBK.

The Cental Bank has previously raised concern that much of the debt was being used to meet administrative expenses such as salaries and not development, which could make it unsustainable.