DEBT

Kenya to borrow 30% of budget as Yatani cuts external loans

The country's debt appetite for the past seven years has worried both local and international observers

In Summary
  • Last month, the International Monetary Fund (IMF) raised Kenya’s risk of debt distress to high from moderate due to the impact of the coronavirus crisis.
  • Total debt is currently at Sh6.3 trillion
Treasury CS Ukur Yatani outside Pariament Buildings on June 11, 2020.
Treasury CS Ukur Yatani outside Pariament Buildings on June 11, 2020.
Image: EZEKIEL AMING'A

Kenya will turn largely to local loans to fund its budget deficit, a departure from expensive commercial loans that have sent the country’s public debt to the roof.

In his maiden budget speech yesterday, cabinet secretary Ukur Yatani did not mince his word on the government’s past borrowing trend, terming it unsustainable.

''The Government is committed to implementing the 2020 Medium Term Debt Strategy, which recommends a shift towards concessional external borrowing and lengthening of the maturity structure of the domestic debt,’’ Yatani said.

He said that the focus would be on strengthening the management of public debt to minimise cost and risks of the portfolio while accessing external concessional funding to finance development projects.

Even so, the government will be forced to borrow slightly above 30 per cent of its Sh2.79 trillion budget for 2020/21 even as the public debt pile.

According to the budget statement, the government is planning to borrow Sh840.6 billion or 7.5 per cent of GDP to fund the budget deficit, slightly lower compared to Sh842.7 billion or 8.3 per cent of GDP in the current financial year.

Yatani said he will source Sh494 billion of the loan locally and Sh347 billion from the external debt market and promised to cut the budget deficit in the medium term to slow the borrowing rate.

''Whereas Kenya’s public debt remains sustainable, we need to be cautious about future debt accumulation,’’ Yatani said.

Kenya’s debt appetite for the past seven years has worried both local and international observers, a move that may have forced the government to go slow. Total debt is currently at Sh6.3 trillion, according to the Central Bank of Kenya.

Last month, the International Monetary Fund (IMF) raised Kenya’s risk of debt distress to high from moderate due to the impact of the coronavirus crisis.

“The risk of debt distress has moved to high from moderate due to the impact of the global Covid-19 crisis which exacerbated existing vulnerabilities,” the fund said.

A week earlier, credit rating agency– Moody's had revised Kenya's credit rating outlook to negative citing costly loans being pursued by the state.

"The negative outlook reflects the rising risks posed by Kenya's large gross borrowing requirements," Moody's said in a statement.

They both accused Kenya of an over-ambitious budget, which is not in tandem with revenue collection.

In the coming financial year, for instance, Treasury has projected domestic revenue at Sh1.6 trillion, meaning, it will borrow more than half what Kenya Revenue Authority (KRA) is expected to collect.

This is subject to actual collection, considering that KRA has failed to meet its targets in the past four consecutive financial years.

As of April 2020, cumulative ordinary revenue collection was Sh1.35 trillion which is almost 20 per cent below the target.