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February 18, 2019

Kenya’s due debt repayment no cause for alarm – analyst

National treasury building along Harambee Avanue Nairobi on March 28,2017.PHOTO/ENOS TECHE.
National treasury building along Harambee Avanue Nairobi on March 28,2017.PHOTO/ENOS TECHE.

Kenya is comfortably able to repay its surging debt due this year, the latest Standard Chartered market outlook shows.

This even as the 2018 findings by global credit rating agency Moody’s named Kenya among countries that will struggle to repay its fast maturing international bonds.

“We expect Kenya to be able to comfortably manage its debt obligations, despite the anticipated surge in debt service payments in 2019,” Standard Chartered Bank economist Razia Khan said on Friday.

Khan noted that with first Eurobond maturity in 2019, perceptions of Kenya’s creditworthiness will determine its ability to refinance debt falling due.

She further said Kenya has an open window to raise new borrowings at the same time.

This probably explaining why Treasury is currently seeking advice from international commercial banks on a Sh250 billion Eurobond that is to be issued before the end of the current financial year.

By June this year, Kenya is expected to start servicing the first trench of Sh280 billion Eurobond taken in 2014.

The first five-year tranche is expected to cost taxpayers Sh97.71 billion with the second 10-year trench of Sh400 billion maturing in 2024.

According to the outlook, released on Friday, Debt redemptions related to other infrastructure projects are also likely to rise.

The IMF estimated Kenya’s gross external financing needs will rise to Sh2.37 trillion in 2019 from Sh1.86 trillion in 2018.

While the global lender assessed Kenya to be at moderate risk of debt distress, their sustainability analysis shows a rise in Kenya’s public debt to 67 per cent of GDP by 2022.

This is up from the current 63.2 per cent of GDP in 2018 and will be possible in the absence of primary deficit reduction.

The outlook projects an under six per cent growth in GDP in the coming years, in the likely absence of growth drivers such as agriculture.

While this is the case, Khan said there is a great need for the government to embark on fiscal consolidation if it intends to completely deal with its surging debt.

This includes introducing new measures to raise revenue and finding a balance between its development and recurrent expenditure.

“Comfortable refinancing of obligations will require Kenya to reassure on fiscal reform,” she said.

This, according to the outlook includes actively encouraging offshore participation in the likely event of external funding stress.

Currently, Kenya’s foreign exchange reserves stand at Sh800 billion.

The outlook estimates current account receipts to rise will rise $20 billion in 2019 from $18 billion in 2018 on strong remittance and tourism growth.

The ratio of debt service to exports is estimated at 75.8 per cent in 2019 from 39.6 per cent in 2018, while external debt service on public and publicly guaranteed debt is estimated at 21.6 per cent of revenue. Including domestic debt, total debt service would account for an even larger share of revenue.

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