DEBT

Kenya receives Sh82bn loan from Japan for Mombasa projects

The concessional loan will to surge and edge the total government debt nearer to the Sh6 trillion mark.

In Summary

•CS Yatani said the new credit for the two projects will attract an interest of 0.1 per cent, repayment period of 28 years and a grace period of 12 years. This means the government will start repaying the loan in 2031 and complete in 2059.

•The Asian country has shown an interest in financing projects in the Mombasa through the Official Development Assistance (ODA) facility since Kenya's independence in 1963.

Ambassador of Japan to Kenya Ryoichi Horie with National Treasury acting Cabinet Secretary Ukur Yatani during the signing of the Exchange of Notes
Ambassador of Japan to Kenya Ryoichi Horie with National Treasury acting Cabinet Secretary Ukur Yatani during the signing of the Exchange of Notes Ambassador of Japan to Kenya Ryoichi Horie with National Treasury acting Cabinet Secretary Ukur Yatani during the signing of the Exchange of Notes

The government has borrowed Sh82.713 billion concessional loan from Japan as development assistance fund, forming the first largest loan package in the 2019/2020 financial year.

The loan will be divided into two tranches.

Loan credit amounting to Sh46.574 billion ($450 million) will be directed in the construction of Mombasa Gate Bridge over Likoni Channel, to improve tourism and trade through the reduction of congestion according to acting National Treasury and Planning Cabinet Secretary Ukur Yatani.

 
 
 

The remaining portion amounting to Sh36.139 billion ($350 million) will fund the development of new Mombasa's Special Economic Zone (SEZ) in Dongo Kundu Area.

The financial facility makes the cumulative funds from Japan to Sh615.83 billion.

It is also likely to surge and edge the total government debt nearer the Sh6 trillion mark.

Currently, the debt stands at Sh5.809 trillion as at June 2019, according to Central Bank of Kenya data.

However, the financial ministry chief has maintained that the government will stick to reducing the fiscal deficit, adding that Kenya has never defaulted on repayment as it borrows for development projects rather than recurrent expenditure.

"From this year moving forward, we are only borrowing within sustainable limits. We are heavily rationalising our budget especially on the recurrent area, save money so that we can reduce on size of loan we take," CS Yatani said.

In February, the World Bank approved a $750 million (Sh75 billion) loan to Kenya for budget support.

The reception of the Japanese loan comes at a time when CS Yatani said he will cut spending amount, especially in the public corporations to reduce the fiscal deficit.

The government said it hoped to lower the fiscal deficit from the current 7.7 per cent of GDP to 3.5 per cent by 2022, meaning the exercise will require a reduction in spending by more than Sh300 billion annually.

Some of the measures CS Yatani announced to make includes freezing budgetary allocations to new projects and instead, prioritise funds to stalled projects or those aligned to the Big Four agenda.

 

Others include cutting down expenditures on foreign and domestic travel by government officials, hospitality, training, communication supplies, printing and advertising, and use of government vehicles.

In the 2019/20 budget statement, expenditures and net lending were projected at Sh2.8 trillion for the year that began in July, leaving a fiscal deficit including grants of Sh607.8 billion.

The fiscal deficit will be financed by net external financing of Sh324.3 billion and net domestic financing of Sh283.5 billion.

CS Yatani said the new credit for the two projects will attract an interest of 0.1 per cent, repayment period of 28 years and a grace period of 12 years.

This means the government will start repaying the loan in 2031 and complete in 2059.

"We have assurance the funds will be disbursed from Japan timely so there will be no additional costs to citizens. The issue of price inflations will not arise," CS Yatani added.

"This is a critical undertaking because of occurred ferry accidents affecting the economy of Mombasa. The bridge in Likoni will offer a lasting solution."

Japan will also issue another Sh6.08 billion as a grant for the infrastructure development of the SEZ including developing a port, access road, electricity and water supply and drainage facilities.

The project is expected to enhance container handling capacity at the port.

“The SEZ aims to boost the manufacturing agenda. According to the master plan, about 27,100 people are to be employed when it is fully operational,” CS Yatani said during the signing of the Exchange of Notes with  Ambassador of Japan to Kenya Ryoichi Horie, on the provision of loan credit and the grant.

"We have procurement procedures feeding into the international procurement regulations to guide purchasing of materials and services," Treasury PS Julias Muia said.

The projects will start in January 2021 and are expected to take four years to complete.

"The projects need redesigning and setting logistical arrangements. Soon we will start procurement of consultants to oversee the project," Muia added.

The Asian country has shown an interest in financing projects in the Mombasa through the Official Development Assistance (ODA)  since Kenya's independence in 1963.

Some projects include a jetty and cold storage facility in Liwatoni in Mombasa, expansion of Moi international airport, construction of New Nyali Bridge and New Mtwapa Bridge.

Currently, the second container terminal of the port of Mombasa, as well as the Mombasa southern By-pass road, are being constructed using Japan's ODA.

It could be said that the growth of Mombasa as a tourism hub and as the gateway to Kenya and entire East Africa for both exports and imports is a shining symbol of Japan's ODA to Kenya,” Ambassador Horie said.

Horie said the signed agreements embody Japan's Tokyo International Conference on African Development (TICAD-7) Summit held in August.

President Uhuru Kenyatta, CS Yattani among other delegates attended the summit in Yokohama.