Eurobond raises share of costly foreign bank debt

National Treasury secretary Henry Rotich. FILE PHOTO | NMG 

By CONSTANT MUNDA

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Summary

• The latest Central Bank of Kenya (CBK) statistics show of external debt contracted from commercial banks jumped Sh150.3 billion between December 2017 and March.
• About Sh858.1 billion, or 34.2 per cent, of Kenya’s foreign debt was commercial, the CBK data shows, surpassing Sh836.8 billion owed to multilateral lenders such as the World Bank Group.
• Multilateral lenders made up 33.3 per cent, or Sh836.8 billion, of the foreign debt load in March, while bilateral component from countries such as China stood at 31.9 per cent or Sh800.9 billion.

The Sh201.44 billion Eurobond has seen Commercial banks take the largest share of Kenya’s foreign debt at March, exposing taxpayers to costly interest repayments.

The latest Central Bank of Kenya (CBK) statistics show of external debt contracted from commercial banks jumped Sh150.3 billion between December 2017 and March.

About Sh858.1 billion, or 34.2 per cent, of Kenya’s foreign debt was commercial, the CBK data shows, surpassing Sh836.8 billion owed to multilateral lenders such as the World Bank Group.

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Interest on commercial debt is market determined unlike multilateral and bilateral loans which come on concessional terms.

“Kenya’s proportion of concessional debt declined as a result of increased commercial and semi-concessional borrowing, mainly driven by the $2.0.billion international sovereign bond. Consequently, the share of commercial debt increased by 4.1 percentage points during the review period,” the CBK says in Quarterly Economic Review report for the period ended March.

The $1 billion (Sh100.72 billion) 30-year component of the Eurobond contracted at 8.25 per cent interest last week traded at an average of 9.16 per cent on the London Stock Exchange, while the rate for the 10-year tranche was 8.25 per cent against 7.25 per cent during the issue on February 21.

Multilateral lenders made up 33.3 per cent, or Sh836.8 billion, of the foreign debt load in March, while bilateral component from countries such as China stood at 31.9 per cent or Sh800.9 billion.

China, Kenya’s largest bilateral lender, was the single largest creditor with $5.3 billion (Sh533.82 billion) loans as at March, higher than $5.2 billion (Sh523.74 billion) in December 2017.

Debt owed to World Bank’s International Development Association stood at $5.1 billion (Sh513.67 billion) in March from $5.0 billion (Sh503.6 billion) three months earlier.

External debt repayments obligations are projected at Sh364.66 billion this financial year ending next June, slightly lower than the Sh394.89 billion, which has been allocated to development projects.