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Finance Minister Uhuru Kenyatta confers with CBK Governor/FILE

Kenya

Kenya’s public debt balloons

NAIROBI, Kenya, Nov 1- Kenya’s public debt continues to balloon driven by the depreciation of the shilling against major world currencies, and currently stands at 56.6 percent of the Gross Domestic Product (GDP). 

According to the monthly debt bulletin from the Treasury, public and publicly guaranteed debt stood at Sh1.56 trillion in September 2011 which represented a 1.2 percent increase over August’s figure.

External debt grew by Sh31.32 billion to Sh799.83 with money owed to multilateral creditors dominating the portfolio.

“The high proportion of debt from official external sources demonstrates a conscious effort to contract loans on concessional terms. 35.1 percent of Kenya’s external debt is denominated in the Euro while about 3.7 percent is in Chinese Yuan,” the statement shows.

The country has in the last 10 months seen inflation accelerate sharply as has its currency – which has so far lost 26.2 percent of its value this year – due to what has been blamed on local drought conditions and a surge in food and fuel prices.

This, coupled with a worsening current account balance has in turn forced the government to import more but with borrowed resources to meet its financial obligations.

At nearly 57 percent of the GDP, the debt levels are way above the government’s target of 45 percent of the GDP and clearly border on the unsustainable.

The country has not had any reprieve from the weak shilling with estimates showing that due to the weak shilling, Kenyans could fork out an additional Sh100 billion to service the loans, a scenario that also impacts the government’s ability to service them.

“Actual principal and interest payments for the month of September 2011 was Sh2.77 billion and Sh0.69billion (Sh690 million),” the statement further read.

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On the local front, domestic debt declined by Sh12.4 billion to Sh764.28 billion partly because the government has had to buy a lot of the shillings from the repo market to tighten the liquidity as well as due to reduced uptake of government securities.

The increasingly unsustainable debt levels and a deteriorating shilling have heightened the need for the government to find ways of cutting its spending, an exercise that is already underway in various ministries.

But even as the debts continue to grow, United Nations Millennium Campaign Regional Director for Africa Charles Abugre opined that what is more worrying is the fact that most of the it is short term, which increases the burden of servicing it. 

“If they can issue long term bonds, then it changes the structure of the debt. Such a bond also goes directly into infrastructure without being a burden on the budget,” Abugre explained adding that a debt with a long maturity period also ensures that the government does not compete with the private sector for credit.

In addition, the economist proposed that the government should strive to have those long term bonds in local currency to reduce the import dependence that comes with foreign exchange.

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