IMF raises Kenya's debt distress to high from moderate

The International Monetary Fund has raised Kenya’s risk of debt distress to high from moderate due to the impact of the coronavirus crisis.

This comes at a time when the country’s debt is at an all-time high of  Sh6.3 trillion as of March.

Kenya's debt stood at 61.7 per cent of GDP at the end of last year, up from 50.2 per cent at the end of 2015, the IMF said, driven up by gaping budget deficits that were caused by large infrastructure projects such as a new railway line.

“The risk of debt distress has moved to high from moderate due to the impact of the global Covid-19 crisis which exacerbated existing vulnerabilities,” the fund said in an assessment published on Tuesday.

The government has responded to the crisis with a range of fiscal measures, including cuts to value-added and income taxes, which have worsened a number of indicators, the IMF said.

The debt load, however, still remained sustainable, the fund added. Last week, it approved $739 million in emergency funding for Kenya to help it tackle the Covid-19 crisis.

Central Bank of Kenya (CBK) data shows total debt stood at Sh6.28 trillion in March, up from Sh6.15 in February and Sh6.11 trillion in January. The debt closed the year 2019 (December) at Sh6.04 trillion.

The latest development puts pressure on the government as it tries to balance between honoring its debt obligation and renegotiating repayment terms to free up some cash to cushion the economy from Covid–19.

"The largest economies in the world are in discussions with ourselves on the issue of suspension of debts," President Uhuru Kenyatta said in a recent address to the nation.

The country’s total public debt, as per CBK data, includes Sh3.212 trillion external and Sh3.071 trillion domestic.

Current debt obligation for this year stands at Sh253.2 billion after it was revised in a supplementary budget by Treasury, from the Sh282.3 billion in the 2019-20 budget.

Last week, credit rating agency– Moody's revised Kenya's credit rating outlook to negative citing costly loans being pursued by the state.

"The negative outlook reflects the rising risks posed by Kenya's large gross borrowing requirements," Moody's said in a statement.

The largest amount is owed to China and had ballooned to Sh650 billion in 12 months to June 2019, after the country raked up more loans from Beijing to fund the Standard Gauge Railway.

The funds are mainly from the Exim Bank of China and China Development Bank, which expect a total of Sh78.4 billion this year.

About Sh23 billion are in principal repayments to the Exim Bank of China with Sh37.8 billion being the interest.

The country is also obligated to pay Sh22.3 billion owed to China Development Bank which matures this year–about Sh17 billion principal and Sh4.7 billion interest payments.

Eurobonds maturing this year will see the country pay a further Sh48.9 billion in interest for three facilities floated between 2014 and 2019.

Trade Development Bank is also expecting more than Sh43 billion this year. 

The country is also obligated to Sh27.2 billion owed to the International Development Association (IDA)– publicly guaranteed debt extended by the World Bank Group. 

Other creditors include France (Sh17.5 billion), Italy (Sh8.9 billion), Japan (Sh5.7 billion),Germany (Sh2.9 billion) and Spain (Sh2.2 billion).

“The government has been comfortably borrowing not expecting any crisis. Its going to be a challenging time,” Financial risk management expert and economist Mihr Thakar told the Star.

Last year, National Treasury proposed to increase the debt ceiling to Sh9.1 trillion which was approved by parliament, giving the government more leeway to on credit.

National Treasury CS Ukur Yattani has, however, said the ministry is working to limit the borrowing.

"We are not interested in burdening Kenyans with debt. Our intention is to grow our economy through sustainable borrowing," Yatani said.

Fitch Ratings last month said the economic crisis triggered by the coronavirus will halt Kenya's fiscal consolidation and increase the country's financing needs, meaning the country is likely to seek more debt in the wake of falling revenues on the disruption of businesses and the economy by the virus.

The credit rating provider expects Kenya's general government debt to continue rising through FY22 to reach about 70 per cent of GDP.

This year's loan repayment to China’s Exim bank, which includes the SGR loan if pushed by the government will free up approximately Sh71.4 billion, for the current fiscal period.