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China remains boss as Kenya’s debt hits a record Sh8 trillion

External debt is as Sh4.1 trillion with domestic debt standing at Sh3.9 trillion

In Summary

• Commercial loans account for about 30 per cent of external loans while bilateral loans take up 30 per cent.

• China is the biggest external lender to Kenya accounting for 67 per cent of total external debt, mainly infrastructure financing including the Sh324 billion SGR loan.

A section of Kenya's capital Nairobi CBD.
A section of Kenya's capital Nairobi CBD.
Image: ENOS TECHE

Kenya’s debt is closing on a historic eight trillion mark with China remaining king on the country's indebtedness, mainly borrowing towards infrastructure projects.

The country’s total debt stood at Sh7.99 trillion as of September last year, the Central Bank of Kenya's weekly bulletin indicates.

CBK governor Patrick Njoroge in September said the country must take immediate action to manage its ballooning debt before it crushes the economy.

“We need to be clear in the direction debt is taking us. The time is now. We don’t need to wait until it is crushing us,” he said.

Public and publicly guaranteed external debt is at Sh4.1 trillion, with domestic debt standing at Sh3.9 trillion.

Commercial loans account for about 30 per cent of external loans while bilateral loans take up 30 per cent.

Locally, the National Treasury has been issuing bonds ranging from Sh40 billion and Sh60 billion every month for infrastructure and budgetary support.

China is the biggest external lender to Kenya accounting for 67 per cent of total external debt, mainly infrastructure financing including the Sh324 billion SGR loan.

Other major lenders are (14 per cent) and France which accounts for seven per cent of foreign loans.

According to IMF, Kenya's debt remains sustainable, but it is at high risk of debt distress.

National Treasury remains confident that the country's debt is sustainable. 

The Senate Finance Committee projects the country’s debt will be about Sh300 billion shy of the Sh9.1 trillion limit by end of the current financial year (June 30).

The report by the Committee on the status of Kenya's debt shows the country's debt will be Sh8.7 trillion by end of June.

''This will brings it to Sh337 billion short of Sh9 trillion debt ceiling and will result in the shortage of borrowing space to finance medium-term expenditure,'' the Senate Committee on Finance says in the report.

The committee attributes the rising debt to a persistent fiscal deficit, primarily driven by public expenditure related to an aggressive infrastructure development plan. 

The executive has been pushing the National Assembly to revise upwards the country's debt limit to Sh12 trillion to allow more borrowing space, an aspect that has been opposed by international lenders like the World Bank.

The rising debt stock has resulted in a high debt servicing expenditure amounting to Sh1.17 trillion in this financial year up from the projected Sh952.7 billion.

High debt service reduces the equitable share available to both levels of the government which affects service provision due to delays in disbursements.

The exchequer has on many occasions delayed releasing funds to county governments, leading to industrial actions.

In recent months, rating firms have revised Kenya's debt to high risk.

While noting that the country has never defaulted, Njoroge was concerned that it is running out of room for further borrowing.

The concern came at a time when Kenya continues to spend taxes on debt repayment where for every Sh100 collected, Sh10 goes to repay debt, amid borrowing for recurrent and development expenditures.

The country has recently accumulated a number of loan facilities including the fourth Eurobond issue of $1 billion (Sh108 billion) in June. 

Kenya went for the first Eurobond in 2014 worth $2 billion (Sh219.9 billion), followed by two more issues of $2.1 billion (Sh 239.9 billion) and $2 billion in 2018 and 2019, respectively.

Multilateral facilities account for 41 per cent of total borrowing.

There have been aspects of recurrent expenditure in areas like education, and health, increased guaranteed debt, worsening terms on new loans, such as lower concessions and increased commercial loans.

While the heavy infrastructural investment has been hailed, they are long-term investments whose impact will not be felt in the economy in the short term.

This, as the economy continues to take shocks from the Covid-19 pandemic.

“Investment in infrastructure should stimulate the economy. Why is it that we cannot capture more returns on the investment in infrastructure?,” Njoroge posed during a recent appearance in a Senate Committee.