Debt interest payments to rise 24pc in next budget

The National Treasury offices in Nairobi. PHOTO | FILE

By CHARLES MWANIKI
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Summary

• Kenya’s interest payments on public debt will go up by Sh113.5 billion in the next fiscal year compared to the current one, eating further into tax revenue and the country’s dollar reserves.
• The National Treasury’s 2021/2022 Budget Policy Statement (BPS) that was released yesterday shows that the government anticipates spending Sh587.6 billion in 2021/2022 in interest payments, up from Sh474.1 billion this year.
• The cost of servicing public debt has gone up in tandem with the ever growing budget deficit, which has made it necessary for the government to increase its borrowing every year.

Kenya’s interest payments on public debt will go up by Sh113.5 billion in the next fiscal year compared to the current one, eating further into tax revenue and the country’s dollar reserves.

The National Treasury’s 2021/2022 Budget Policy Statement (BPS) that was released yesterday shows that the government anticipates spending Sh587.6 billion in 2021/2022 in interest payments, up from Sh474.1 billion this year.

The cost of servicing public debt has gone up in tandem with the ever growing budget deficit, which has made it necessary for the government to increase its borrowing every year.

The government’s appetite for commercial loans such as Eurobonds and syndicated loans between 2014 and 2019 is also a contributor, with this line of credit contributing heavily to the sharp rise in external interest payments in recent years.

The BPS shows that interest payments on domestic loans will account for the lion’s share at Sh409.9 billion, up from Sh340 billion in the current fiscal year, while external interest payments will amount to Sh177.8 billion, up from Sh134.1 billion this year.

The government’s outstanding domestic debt currently stands at Sh3.49 trillion, for which the Treasury pays interest at between 6.99 and 13.5 per cent on an annualised basis depending on tenor of the issued securities. External debt meanwhile stood at Sh3.77 trillion by the end of November.

In total, public debt went up by Sh560.8 billion between June and November 2020.

In the coming fiscal year, the government will make a net borrowing of Sh937.6 billion to fill the budget deficit, which is equivalent to 7.5 percent of GDP.

This will be made up of Sh592.2 billion in net domestic borrowing and Sh345.5 billion from external lenders.

On the external front, the government will once again rely on semi-concessional, project and programme loans, shunning commercial loans that have been deemed expensive given the current state of government finances.