Foreign bank loans triple as external debts pass Sh1trn

Money Markets

Treasury secretary Henry Rotich addresses journalists in Nairobi on the June 25 on Eurobond issue. PHOTO | FILE 

By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com

In Summary

• Kenya's external debt load rose by Sh242.4 billion from June 2013 to June 2014, at a faster pace than domestic debt that increased by Sh199 billion during the 2013/2014 financial year.
• The CBK monthly economic report shows the whole foreign debt stood at Sh1.085 trillion, representing an increase of Sh128 billion from May.
• In the first four months of the current financial year, the Treasury has managed to keep domestic borrowing flat as it turns to cheaper international borrowing.

The portion of external debt owed to commercial banks has nearly tripled as Kenya’s foreign liability crossed the Sh1 trillion mark following issue of the Eurobond.

Latest official numbers show the amount increased from 6.2 per cent in May 2014 to 16.8 per cent last June. The year-on-year increase from June 2013 was seven per cent to Sh173.6 billion.

This came as the external debt load rose by Sh242.4 billion from June 2013 to June 2014, at a faster pace than domestic debt that increased by Sh199 billion during the 2013/2014 financial year.

“The increase in external debt owed to commercial banks during this period is attributed to an increase of Sh122.6 billion in June 2014 on account of the successful issuance, by the Government of Kenya, of the debut sovereign bond (Eurobond) which attracted a lot interest in the international markets,” said the Central Bank of Kenya in the monthly review.

Kenya successfully issued the Sh174 billion bond later listed in Dublin. The CBK monthly economic report shows the whole foreign debt stood at Sh1.085 trillion, representing an increase of Sh128 billion from May.

Between May and June, the portion of owed to multilateral lenders declined from 62.2 per cent to 55 per cent.

Bilateral lenders and export credit declined from 30.1 per cent to 26.7 per cent over the one month while export credit remained unchanged at 1.5 per cent.

The International Development Association, a unit of the World Bank, is listed as Kenya’s largest multilateral lender at Sh366 billion with Japan the largest bilateral lender at Sh89 billion at the end of June.

From the proceeds of the bond, Kenya also retired an external syndicated loan of Sh52 billion. But the external debt surge narrowed the gap between external and domestic debt.

READ: Treasury secures payment extension for Sh52bn loan

In the first four months of the current financial year, the Treasury has managed to keep domestic borrowing flat as it turns to cheaper international borrowing.

Cumulative domestic debt stands at Sh1.25 trillion this month, the same as it was in June. This is due to maturing and paying off government securities.

Experts say the rise in debt, including from commercial borrowing will only become problematic if it is directed towards recurrent rather than development spending.

“Going forward fiscal policy is key. There is little room for slippage given Kenya’s debt ratio,” said Standard Chartered head of research for Africa Razia Khan.

As at the end of June, Kenya’s official external creditors accounted for 45.8 per cent of total public and publicly guaranteed debt. The debt to gross domestic product (GDP) ratio is at around 47 per cent after the recent rebasing of the GDP.