Payment of external debt nearly doubles in 6 months to Dec

National Treasury Cabinet Secretary Ukur Yatani. FILE PHOTO | NMG

By CONSTANT MUNDA
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Summary

• External debt redemptions jumped 83.99 percent to Sh80.71 billion in the period compared with a similar period a year earlier when they amounted to Sh36.84 billion, Treasury data shows.
• The increased expenditure were largely driven by a surge in redemptions (principal sums) owed to China’s state-owned lenders as well as commercial creditors under the Eurobond and a consortium of international banks.

Repayment of principal sums owed to external lenders for six months through December 2020 nearly doubled in the lead-up to Treasury’s U-turn in taking debt relief offer and push to create a special debt fund.

External debt redemptions jumped 83.99 percent to Sh80.71 billion in the period compared with a similar period a year earlier when they amounted to Sh36.84 billion, Treasury data shows.

The increased expenditure were largely driven by a surge in redemptions (principal sums) owed to China’s state-owned lenders as well as commercial creditors under the Eurobond and a consortium of international banks.

Repayments to Chinese banks — predominantly the Exim Bank— jumped more than three-fold, or 349.61 percent, to Sh16.84 billion from Sh3.75 billion a year earlier. This followed expiry of five-year period that Beijing had extended to Nairobi for the loans used to build the standard gauge railway (SGR) line.

The data further shows that payment of principal sums on commercial credit — Eurobond and syndicated loans largely arranged by Trade and Development Bank, formerly the PTA Bank — gobbled up Sh39.83 billion. This is a 90.50 percent jump compared with Sh20.91 billion spent in the first half of previous financial year.

Overall, Kenya’s external debt service costs shot up 34.54 percent to Sh141.77 percent in the six-month period despite interest costs remaining largely unchanged at Sh61.06 billion, a slight drop from Sh61.51 billion a year earlier.

The Treasury in January got a reprieve on bilateral debt obligations after the Paris Club of international creditors deferred Sh32.9 billion in debt obligations that were due this financial year ending June.

Kenya’s successful application marked a U-turn on its earlier reluctance to take up the offer Debt Service Suspension Initiative (DSSI) led by a group of world’s 20 major economies or G20.

The country further freed up Sh27 billion from China, its largest bilateral lender.

With debt obligations set to bump up from July after the DSSI debt relief expires, the Treasury is lining up fund under Public Finance Management (PFM) Regulations 2015 — technically known as Sinking Fund — to specifically pay off maturing debt.

Director-general for public debt management at the Treasury Haron Sirima said the fund, to be managed by the Treasury and publicly-funded, will also be spent on buying back bonds when interest is low and retire some of the debts earlier to avoid higher costs in future.