Kenya asked to go slow on domestic debt

Kenya has been urged to go slow on domestic debt accumulation to tame the rising total public debt that has since grown to Sh8.7 trillion.

The Central Bank of Kenya, the state's debt seller has been issuing an average of Sh50 billion in domestic bonds every month since January last year, largely to pay pending bills and to support infrastructure. 

Speaking exclusively to the Star, the Institute for Social Accountability (TISA) executive director, Diana Gichengo said there is limited public attention on the government's accumulation of domestic debt with limited accountability. 

"The National Treasury is giving very generic information whenever it floats a domestic bond. Blanket statements like 'use for infrastructure development' or 'budgetary support' impends accountability,'' Gichengo said. 

She added that high-interest rates of up to 14 per cent are pilling more pressure on the country's ballooning public debt hence not sustainable. 

The organisation has been at the forefront of advocating for debt transparency in the country under the Okoa Uchumi banner in the past five years. 

The high domestic debt obligation amid dwindling revenue saw the National Treasury convert Sh87.8 billion worth of government securities that are due to mature in January into a medium-term infrastructure bond in order to avoid a cash crunch early in the New Year.

The direct conversion of maturing Treasury bills and bonds into longer-term security, which is known as a switch bond, has been done only once before by the exchequer, in June 2020.

The latest data from the National Treasury shows the state is expected to service Sh461.4 billion in redemptions and Sh553 billion interest on domestic debt in the current financial year.

The total stock of domestic debt currently stands at Sh4.4 trillion, Sh3.6 trillion in bonds while the balance is in Treasury Bills.  

An Economist Jerry Ogutu wants borrowing laws to be updated to allow the Parliament to have a say in the floating of bonds and bills. 

"The National Treasury cannot make and have its cake. Security around domestic debt accumulation must be enhanced to avoid a scenario where the government is defaulting. Accountability is key,'' he told the Star on phone.

His sentiments are echoed by economists at TISA who argue that rolling over of domestic debt on higher interests is catastrophic for the country's fiscal plan. 

"The government has done better in limiting external commercial loans and multilateral and bilateral loans have clear checks. A similar parameter must be applied to local loans if we want to address the effects of high debt,'' TISA said. 

The rising domestic debt and interest rate recently caught the eyes of President William Ruto, forcing him to order the exchequer to borrow at less than 10 per cent. 

Experts have already dismissed the order as ill-advised, saying that the directive will starve the government.

Kenya failed to meet Sh84.6 billion ($695.4 million) debt repayment obligations in the year to June due to a cash crunch and instead carried over the payments to the current fiscal year.

The public debt rose to Sh8.6 trillion ($70.7 billion) adding more burden on service costs, with more than Sh945 billion ($7.8 billion) used to pay domestic and external lenders in the 2021/22 financial year.

In its latest review of the progress on implementing projects under its 38-month credit scheme, the International Monetary Fund (IMF) said Kenya failed to pay 0.7 per cent of the country’s GDP to external creditors.00

The IMF did not make public the identity of the creditors.

“A constrained borrowing environment meant that planned external commercial financing did not materialise. Lack of funds contributed to 0.7 per cent of GDP in unpaid obligations that were carried over to the 2022/23 financial year,” IMF stated.