DEBT CONCERN

Kenya targets Euro loans as weak shilling loses to dollar

About 69.0 per cent of the total external debt is US dollar denominated.

In Summary

•About 18.1 per cent is in Euro, 5.5 per cent in Chinese Yuan, 4.5 per cent in Japanese Yen and 2.6 per cent in Great Britain Pound.

•Treasury CS Ukur Yatani has also said the country is ditching expensive commercial loans based n reduced capital investment on infrastructure.

National Treasury Cabinet Secretary Ukur Yatani/
National Treasury Cabinet Secretary Ukur Yatani/
Image: FILE

Treasury is considering Euro-based loans to mitigate exchange rate risks currently pushing up the country’s debt obligation.

This is in the wake of a vulnerable shilling to the US dollar that has surpassed the 110 mark, exchanging at an average 110.07 yesterday, thus exerting pressure on the country’s debt repayment.

This is however still lower by 21.58 units compared to the Euro which was yesterday quoted at an average 131.65 against the local currency.

 
 

The weak shilling has pushed up annual interest on Kenya's dollar denominated debt by more than Sh10 billion.

According to the National Treasury data, external debt forms 50.1 per cent of total debt and is exposed to exchange rate risk.

Out of this external, 69.0 per cent is US dollar denominated, 18.1 per cent in Euro, 5.5 per cent in Chinese Yuan, 4.5 per cent in Japanese Yen, 2.6 per cent in Great Britain Pound and other currencies account for 0.3 per cent.

National Treasury Cabinet Secretary Uhur Yatani said a switch to other denominations, a bargain for lower interest rates and a longer repayment period, will mitigate on the shilling's vulnerability and help manage the high interest repayment occasioned by a stronger dollar.

“We are pursuing euro denominated loans as we also seek concessional loans with interest of one per cent and longer repayment period of 20 years,” Yatani told the National Assembly Committee on Finance and Planning, chaired by Homa Bay Woman Representative Gladys Wanga.

Yatani's position comes at a time when the country 's external loan has grown four times in the past decade, according to World Bank.

It is currently at Sh3.66 trillion and combined with domestic borrowing, currently at Sh3.46 trillion, it puts Kenya’s total debt at a Sh7.12 trillion–Central Bank of Kenya (CBK) data.

 
 

The Public Finance Management Act sets the public debt ceiling at Sh9 trillion; meaning government has room to borrow about Sh1.9 trillion, a figure that analysts have projected could be hit within two years, raising sustainability questions on Kenya’s debt.

 

Yesterday, MPs cast doubt on measures being put in place to manage the swelling debt.

“I am not convinced that the rosy picture you are giving is the real case,” Kisumu Town East MP Shakeel Shabbir posed to the CS.

Yatani however maintained the country’s debt remained sustainable, adding that there is a cut on commercial borrowing to finance mega projects, which will ensure no more burdens going forward.

“In the last 12 months, we have not processed anything from commercial lenders. We are looking at multi-lateral borrowing,” Yatani said.

Current financial year’s borrowing target is set at Sh840.6 billion (Sh494 billion domestic and Sh347 billion external debt).

This however could be pushed up by borrowing to mitigate effects of Covid-19 and revive the economy post the pandemic.

Treasury has so far borrowed about Sh1 billion which comprises of about Sh780 million IMF and Sh250 million from World Bank, to mitigate on Covid, among them being the setting up of a Credit Gurantee Scheme for businesses.

“We are fully within the levels that are conventional,” Yatani said, dismissing the conversation around Kenya defaulting on its loans, “Kenya has never defaulted.”

“Efforts will be made to contract debt in the major currencies that match the currencies of Kenya’s export proceeds. We have a strategy,” Yatani said.