The Treasury stated that the servicing of the dollar-denominated loans will rise in the wake of the depreciating shilling that is now taking a heavy toll on government revenues.
The Treasury has revised the budget deficit upwards by Sh143.3 billion – from the initial Sh718 billion to Sh861.3 billion – in the current financial year.
Consequently, the government has set its eyes on lenders for the additional Sh143.3 billion to bridge the budget gap.
“In the financial year 2023-24 supplementary budget 1, the budget deficit has been revised upward to Sh861.3 billion,” Treasury PS Chris Kiptoo told a Parliamentary committee.
By Monday, the US dollar was exchanging at Sh152.44 against the Kenya shilling.
The revelations could be a blow to President William Ruto who last week assured the country it was slowly moving out of debt distress.
“We have worked hard, at home and further abroad, to mobilise a broad coalition of bilateral development partners, multilateral development banks and other agencies,” the President said.
“.. [they] have rallied to pull our country back from the brink of debt distress and set us firmly on the path towards sustainable economic growth,” the head of state said during the State of the National address in Parliament on Thursday.
He added, “I can now state with confidence that we will and shall pay the debt that has become a source of much concern to citizens, markets and partners.”
Kiptoo said that as a result of the deficit, the Treasury now aims to borrow Sh412.1 billion from external lenders against the initial target of Sh131.5 billion.
Net domestic financing has, however, gone down from Sh587.2 billion to Sh449.2 billion.
“The upward revision in net external financing was due to new sources of external concessional financing from multilateral agencies and the increased cost of domestic borrowing,” Kiptoo said.
Kiptoo tabled the report when he appeared before the National Assembly’s Public Debt and Privatisation Committee last Friday.
The Kenya shilling has depreciated sharply against the dollar since last year. The shilling has depreciated from about Sh107 in June last year to hit an all-time low of Sh151.69.
This was attributed to the high demand for the dollar by importers.
The latest report shows that the public debt has surpassed the Sh10.58 trillion mark after the Treasury borrowed a record Sh310.0 billion in the first three months of the fiscal year.
This translates to an average daily borrowing of Sh3.36 billion.
The debt comprises Sh5.66 trillion (53.3 per cent) external debt and Sh4.92 trillion (46.5 per cent) domestic debt.
“The depreciation of Kenya shilling has been the primary driver of nominal growth in external debt,” the PS said.
Over the period, the state spent Sh277 billion in servicing debt.
External debt payments stood at Sh151.1 billion, comprising principal repayments of Sh89.4 billion and interest payments of Sh62.7 billion, while domestic interest payment was Sh125.9 billion.
“Debt service payments are projected to rise due to the depreciation in Kenya shillings,” Kiptoo told the committee.
This has forced the government to revise its repayment plan upwards.
For instance, the inaugural Eurobond of $2 billion taken in 2014 will now attract an extra Sh70 billion due to the weak shilling.
The dollar was selling at an average of Sh88 by the time Kenya was raising its first-ever Eurobond debt.
Data from the National Treasury shows the country will pay Sh311.6 billion to clear the initial Eurobond in June, up from the initial Sh240 billion.
This is after Kenya revised its currency from Sh120.80 to Sh155.81 against the US dollar.
The PS told the panel the National Treasury has embarked on revising the external borrowing plan and, in consultation with the Central Bank of Kenya, has revised the domestic borrowing in the wake of the drop in shilling.
“The two plans will be consolidated and submitted to the Cabinet Secretary of the National Treasury and economic planning for approval,” he said.
