NAIROBI, Kenya, Sept 16 – Sixty-seven percent of Kenya’s bilateral debt is owed to China, more than a triple of its 13 percent share it had in 2011, the Central Bank of Kenya said, highlighting its increased investments in Kenya’s projects.
The analysis by CBK shows that as of June 2021, multilateral debt accounted for the highest share of external loans at 41 percent while debt owed to China, Japan, France, and other bilateral lenders consisted of 28pc.
China which had less than one percent share of Kenya’s bilateral loans in 2006 has overtaken Japan and France which accounted for 51 percent and 12 percent each then.
As of June 2020, Japan’s share dropped 30pc from 44pc in 2011 while France’s share reduced by 7 percent.
The regulator blamed the increased fiscal deficit on increased development and recurrent expenditure, worsening terms on new loans, and increased commercial loans.
Infrastructure, education, and health are among the sectors receiving high donations with COVID-19 and drought exacerbating the debt situation.
“Increased fiscal deficit largely due to development expenditure (e.g, infrastructure) but also recurrent (e.g, education, health), and increased guaranteed debt. Worsening terms on new loans, such as lower concessionality and increased commercial loans,” CBK said in a statement.
The regulator also blamed the Government’s failure to capture returns from expenditures of investments through increased exports, taxes, and faster economic growth.
“The total debt service as a proportion of revenue had shot up to more than 50 percent in 2019/20, meaning that half of our revenues were going to debt service. Now it has come down to almost 40 percent, but this is something that is quite worrying because for every Sh100 you only have Sh60 left to cover for regular functions of government,” CBK Governor Patrick Njoroge said Wednesday.
The structure of Kenya’s external (public and publicly guaranteed) debt changed significantly between 2010 and 2020, with increased uptake of commercial debt to improve Kenya’s presence in the international financial markets to diversify Kenya’s sources of external financing.
Njoroge noted that the country’s rising debt poses financial stability especially at a time when there is a need to ensure post-pandemic economic growth.
He told the Senate Budget and Finance Committee that the country needed to prepare proper policy responses related to debt management which stands at 56.5 percent of the gross product from 42 percent in 2013 when the Jubilee Government came to power.
“This is also problematic because what we are saying for instance is that if you have it at 11 percent what you are saying is that for Sh100 more than Sh10 goes to debt servicing and so there is only Sh90 that is left for the usual service,” the CBK Governor said.
According to documents presented before the committee, the total debt service to revenues increased due to a spike in debt stock and changing terms on new loans including one-off repayment of syndicated loans and Eurobonds in 2019.
He however said the trend is expected to reverse in the medium term due to improving terms on new loans, and the restructuring of external commercial loans that have heavy maturities and high interest costs.
He further told the Senate team that the country must reconfigure its external debt which comes from massive borrowing in recent years to build a range of infrastructure projects such as the Standard Gauge Railway and highways whose projected impact is yet to be fully felt on the economy.
“There may be another bottleneck somewhere so that you can clog so that you don’t have to increase the tax brackets or tax base. The question is at the end do we have faster economic growth. That is to me the overarching question, why is it that we cannot capture more of these returns on investment,” the CBK Governor said.