logo
ADVERTISEMENT

Debt burden has left government cash strapped - Ndung'u

A new report says Kenya runs the risk of entering a more severe liquidity and debt crisis in 2024.

image
by JACKTONE LAWI

Business07 November 2023 - 14:00
ADVERTISEMENT

In Summary


  • •The CS said it’s a short term liquidity crisis, and as the market moves to the to medium term and long term its will take a bit of time to re-adjust and rework that out.
  • •Treasury pointed out that the government will not rush to make knee jerk reactions on the matter, as that is likely to expose the country or make the situation worse.
Treasury cabinet secretary Njuguna Ndungú answers questions when he appeared before the finance and National planning committee in parliament on November.7th.2023

Kenya is facing liquidity challenges from increased maturing debt repayments, leading to delayed release of project funds, the National Treasury has said.

In submission to MPs, National Treasury Cabinet Secretary Njuguna Ndung'u acknowledged the severity of the situation, but maintained that the country is not insolvent.

The CS said what is being experienced is simply a short term liquidity crisis, and as the market moves  in the medium term and long term this will be re-adjust and reworked.

“We are being faced by a liquidity crisis, because we are being hit by short term debt maturities that has been going on for the past two years and it has become pervasive in terms of managing short term debt and at the same time keep your budget right,” said Ndung’u.

The CS who appeared before the Finance and National Planning Committee pointed out that the government will not rush to make knee jerk reactions  as this is likely to expose the country or make worsen the situation.

He said that some of the interest rates in the global markets right now are higher than the country’s real growth and if Kenya was to go for such loans this would invite solvency challenges in the future.

“How we resolve the short term liquidity constraints is important because if we are hasty or inconsiderate of what’s happening in the international capital markets which are very volatile we can ignite solvency challenges,” added Ndungu.

Kenya's only chance to escape its debt trap, according to a Debt Distress report by the Nairobi-based Faida Investment Bank, is to turn to the International Monetary Fund (IMF).

A report by the investment firm says Kenya runs the risk of entering a more severe liquidity and debt crisis in 2024 because it is currently unable to issue new Eurobonds to settle past debt.

At the moment, the country still enjoys some headroom even as the Kenya Shilling maintains its downward spiral against the US Dollar. The depreciation is still sustainable and supported by declining forex reserves.

However, the Cabinet Secretary reaffirmed that the government has initiated a buy back process of the Eurobond in small bits to ease the repayment pressure when the due date come next June.

“We want to buy back small portions of the Eurobond until we reduce the exposure and then we will see how market jitters continue to drop. We will not go to the market to buy dollars to repay the Eurobond,” said Ndung'u.

The MPs also put the CS on task on why the government measures have done little to cushion Kenyans from high prices.

Ndungu said that inflation is actually being fuelled by fuel prices and food, which are dependent very much on supply.

He added that the adjustment for the nominal exchange rate has been uneven.

This is the number of units of domestic currency that can purchase a unit of a given foreign currency.

According to Ndung'u the interest rate structure internationally, especially starting with the US has really been devastating for Kenya.

“Remember that the cost of living and the price of goods is actually a scarcity value problem that is coming. When there is a supply constraint in the market the only solution is to bring goods into the market,” added the CS.

“But what we do and I used to explain this when I was in the Central bank, we tighten monetary policy even though we know this is a supply side problem in the hope that once the supply is back in the market, we can destroy urge to have higher prices.”

Kenya has previously been faulted for the practice of taking on debt to pay debt which has been termed unsustainable.

This coming at a time that Kenya needs to review new strategies centred on debt sustainability with Eurobond 2027 and 2028 maturities coming soon after the June 2024 one.

In June, the government announced at the New Global Financing Pact in Paris that Kenya planned to buy back at least 50 percent of this Eurobond before the end of 2023.

However, the National Treasury was fast to pull back from the plan after Moody’s Investors Services said it may treat a planned buyback of some of the country’s debt as a default.

ADVERTISEMENT

logo© The Star 2024. All rights reserved