Public debt to reach Sh2.9 trillion by end of this year, projects bourse

Standard gauge railway lines being offloaded at the Port of Mombasa on January 16, 2015. Government debt is forecasted to hit Sh2.9 trillion at the end of 2015 from Sh2.5 trillion currently, on increased borrowing to finance infrastructure development. FILE PHOTO | LABAN WALLOGA |  NATION MEDIA GROUP

In Summary

• NSE says this is mainly due to heavy borrowing to finance infrastructure growth.
• In June last year, the government borrowed $2 billion from the international market.

By JOSHUA MASINDE
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The Nairobi Securities Exchange is forecasting government debt to hit Sh2.9 trillion at the end of this year from Sh2.5 trillion currently, on increased borrowing to finance infrastructure development.

Last Friday, bourse Chief Executive Geoffrey Odundo said growth in Kenya’s debt level would be as a result of continued implementation of the ambitious infrastructure development programme that requires heavy capital outlay.

“This for us is good because we will see more debt issues coming to the market and this will continue to give us the required revenue,” said Mr Odundo.

The government has rolled out a number of multi-billion-shilling infrastructure projects in road, rail, energy, port and airport as part of efforts to improve the environment for doing business and attract investors.

The standard gauge railway, which will link Kenya — from the Port of Mombasa — Uganda, Rwanda and later, South Sudan, is being constructed.

Kenya is also implementing an ambitious Lamu South Sudan and Ethiopia Transport corridor project, which will see the development of a new port in Lamu, a pipeline, road and railway.

Three cities and international airports in Lamu, Isiolo and Turkana are also to be developed.

Another plan to generate 5,000 megawatts of energy is also under way. The capital-intensive nature of such projects has seen the government increase its borrowing level, both in the domestic and external markets, for financing.

It also saw the government raise its debt ceiling from Sh1.2 trillion to Sh2.5 trillion late last year.

“We forecast that there would still be continued issuance of sovereign debt as well as other bonds targeting the Middle East,” said Mr Odundo, who also anticipates the Central Bank of Kenya to lower its benchmark lending rate to 8 per cent from 8.5 per cent this year.

SOVEREIGN BOND

In June last year, the government borrowed $2 billion from the international market in an overly subscribed sovereign bond.

An additional $750 million was raised through a sovereign bond towards the end of last year, prompting the government to adjust its domestic borrowing target downwards from Sh190 billion to Sh119 billion.

The aim for the next financial year 2015/2016 has been set at Sh208 billion as the government increasingly feels the pressure of demand for funds to bankroll recurrent and development expenses.

“Borrowing from both the domestic market and external sources is expected to continue, with the government indicating a preference towards concessional loans from external sources,” said Sterling Capital analyst Maureen Kirigua, in the fixed income outlook report for this month.

She projects the public debt-to GDP ratio for the 2015/16 financial year to stand at 43.7 per cent from 51.7 per cent currently, owing to a growth of 6 per cent expected this year.

“Although this can be arguably considered a safe level by the international threshold of 60 per cent for developing nations, there still remains potential risks such as implementation risk, which can increase delayed costs, current expenditure pressures and slower than expected GDP growth,” said Ms Kirigua.

As at the end of last year, Kenya’s public debt stood at Sh2.46 trillion, accounting for 51.7 per cent of GDP. Total domestic debt as at the end of 2014 amounted to Sh1.29 trillion of the overall debt.