- The stock of public and publicly guaranteed debt was Sh9.15 trillion in nominal terms as of the end of December 2022.
- Out of that amount, domestic debt was Sh4.5 trillion while external debt was Sh4.7 trillion.
Image: WILFRED NYANGARESI
The interest rate on Kenya's debt grew by 36 per cent as of December 31, 2022, further worsening the country's debt service vulnerability.
According to the latest Medium Term Debt Management Strategy by the National Treasury, the total interest payments as a percentage of GDP was at 5.3 per cent comprising 3.9 per cent for domestic debt and 1.4 per cent for external debt.
Interest payment for the domestic debt remained high almost triple the level paid on external debt even though their respective stocks are the same.
The maturity of domestic debt is highest in 2023 majorly due to maturing short-term government securities.
The repayment structure is relatively smooth except for spikes in 2023, 2024 and 2028 due to the maturities of international sovereign bonds.
This, perhaps explains why President William Ruto is against the rising cost of domestic debt, whose weighted average yield continues to rise.
Last November, he said the government will no longer borrow money at interest rates of more than 10 per cent, adding that the cost of debt had become “unacceptable''.
“If we find that in the market we cannot find money at 10 per cent, we will go back and re-look at other sources,” he told a meeting of pension industry executives.
This was after the weighted average yield on a 14-year Treasury bond auctioned that week hit 14 per cent.
This difference reflects the high-interest rates on domestic debt due to the shallow domestic debt market attracting minimal capital inflows.
Even so, there was an overall improvement in refinancing, foreign exchange and interest rate risk.
This is reflected by the decrease in the proportion of debt maturing in one year as a proportion of GDP from 10.2 per cent to 8.4 percent.
The proportion of debt maturing in one year as a percentage of total debt also improved from 14.8 per cent to 11.7 percent.
There was an improvement in the average time to maturity for domestic debt from 6.9 years to 7.8 years indicating issuance of the longer-dated instruments in line with the 2021 strategy while the debt denominated in foreign currency reduced from 51.3 per cent to 49 per cent showing a reduction in foreign exchange rate risk.
The maturity structure of domestic debt improved during the period under review.
Government domestic debt securities falling due within a year decreased from 25.9 per cent in December 2021 to 19.5 per cent in December 2022 while instruments with over 11 years remaining to maturity improved to 40.9 per cent from 30.7 per cent.
''The improved borrowing terms reflect the government’s strategy to maximise concessional borrowing during the fiscal year. In addition, the government did not contract the planned commercial debt,'' the report reads in part.
On cost characteristics, interest cost as a share of GDP increased by 0.7 per cent from 4.6 per cent in 2021 to 5.3 per cent in 2022.
This was partially attributed to the depreciation of the exchange rate, rising domestic and international market interest rates and a rise in the stock of public debt.
Kenya was forced to abort the fifth Eurobond in the wake of Russia’s invasion of Ukraine, which increased volatilities in the global money market as the dollar strengthened.
“In our funding for this financial year, we factored in borrowing from the international market, the Eurobond. But we realised as a result of challenges in Russia and Ukraine the cost of borrowing has gone really high,” former National Treasury CS Ukur Yatani told journalists last year.
According to him, the country had borrowed at six per cent in 2021 but the rate had doubled to 12 per cent
"That is why we are still exploring options to look at a number of banks that can advance us the money at a cheaper rate, a figure more or less than an average of six per cent,” Yatani said in June.
The stock of public and publicly guaranteed debt was Sh9.15 trillion in nominal terms as of the end of December 2022.
Out of that amount, domestic debt was Sh4.5 trillion while external debt was Sh4.7 trillion.
As of December 2022, 49 per cent of total public debt was in foreign currencies and thus exposed to foreign exchange rate volatility risk.
The major currencies in the external debt portfolio are U.S. dollars at 68.1 per cent; Euro at 19.8 per cent; Chinese Yuan at 5.4 per cent; Japanese Yen at 4.2 per cent; Great Britain Pound (GBP)at 2.3 per cent while other currencies account for 0.2 per cent.