Inside Kenya’s loans spree as it borrows Sh2.5 billion daily
Kenya has been incurring debts at an average rate of Sh2.5 billion per day while spending Sh2.4 billion daily on repayments since July last year.
As President Kenyatta’s 10-year tenure comes to an end, Kenya has been incurring debts at an average rate of Sh2.5 billion per day while spending Sh2.4 billion daily on repayments since July last year.
Documents from the National Treasury and the office of the Controller of Budget (COB) show that, whereas the country has been borrowing an average of Sh77 billion monthly in the current financial year, the government spent an average of Sh72.4 billion monthly to service debts. This means that, for each Sh1 borrowed since July, an equivalent of Sh0.92 was paid back to creditors.
By end of April this year, Kenya’s public debt stood at Sh8.47 trillion, a Sh773.75 billion increase from Sh7.69 trillion by end of June 2021, latest data from Treasury show. The data show that the government borrowed the highest in July 2021 (Sh116 billion), an equivalent of Sh3.7 billion on a daily basis, and the lowest in October 2021 at Sh42 billion; an equivalent of Sh1.36 billion in daily borrowings.
“Overall, the national government’s external debt stock increased by Sh33.97 billion from Sh4,209.56 billion in March 2022. This was attributed to disbursements and foreign exchange rates movement. Debt owed to bilateral creditors decreased by Sh11.7 billion from Sh1,097.98 billion, while multilateral debt increased by Sh60.4 billion from Sh1,817.37 billion.”
“Commercial debt decreased by Sh11.24 billion from Sh1,134.3 billion during the same period. Publicly guaranteed external debt marginally decreased from Sh159.9 billion in March 2022 to Sh156.39 billion in April 2022,” Treasury’s April 2022 monthly debt bulletin states.
The bulletin notes that external debt denominated in the US Dollar, against which the Kenyan Shilling has been depreciating over the past months, was 67 per cent by April. COB reports that, between July 2021 and March 2022, the government spent a total of Sh651.7 billion servicing debts, with 65.2 per cent of the amount reflecting interest on loans.
“This expenditure comprised Sh226.6 billion towards principal redemption and Sh425.09 billion towards interest payments. External debt servicing amounted to Sh237.58 billion and consisted Sh144.72 billion for principal payment and Sh92.86 billion for interest payment. The total domestic debt payment was Sh414.15 billion, which consisted Sh81.92 billion and Sh332.23 billion for principal and interest payments, respectively,” COB’s report on national government budget implementation between July and March states.
The trend shows that President Kenyatta’s administration is coming to an end with the same high an appetite for borrowing that marked its early months in power. In the current financial year, the administration is expected to borrow about Sh930 billion, going by the trend of the past 10 months. This will likely leave the cumulative public debt at Sh8.6 trillion by end of June 2022.
In the 2020/21 financial year, the government borrowed a total of Sh1.003 trillion, crossing the Sh1 trillion mark in borrowing in a single year. This was an increase from the Sh883.3 billion the government borrowed in the 2019/20 financial year.
This means that, in his last two years in office, President Kenyatta will have borrowed at least Sh1.9 trillion, an amount that is higher than the total public debt Kenya had accumulated between independence and 2013 when he rose to power. Economists argue that the growing public debt burden, which has greatly affected spending on development, is a source for worry, calling on those campaigning to lead the country after August to clearly state in their manifestos how they propose to manage the public debt. Mr Ken Gichinga, the chief economist at Mentoria Economics, explained that when the government spends almost what it borrows to service debts, it is left with little or nothing at all to commit to development. This, he argues, may stagnate the economy and have a ripple effect on creation of jobs and the cost of living.
“Since we are spending almost the same amount we are borrowing to service current debts, the debt load is getting heavier and clouding the country’s economic outlook,” Mr Gichinga said.
The government is supposed to borrow for development activities, so that projects into which funds from loans have been injected can trigger more economic activities and generate revenues to support loan repayments, but Kenya has found itself in a hole where most of the projects supported by loans are not making economic sense.
“The biggest cause for worry is that there is still no significant policy prescription on how to reduce the public debt to 55 per cent as targeted by the Finance Act, even as debt is constraining growth prospects,” says Mr Gichinga. In the year to June 2013, when former President Mwai Kibaki handed over to President Kenyatta, the government spent Sh282 billion on servicing public debt, an amount that rose to Sh651.7 billion in the first 10 months of his final year in office, meaning that the burden of servicing debts has gone up by 130 per cent.
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“The cumulative stock of public and publicly guaranteed debt was Sh1.89 trillion, representing 49.5 per cent of GDP as at end June 2013; comprising Sh1.05 trillion and Sh843.56 billion from domestic and foreign borrowing respectively,” the 2012/13 COB report stated.
The share of public debt to GDP has over the nine years moved from 49.5 per cent to 68.4 per cent by April 2022. The government budgeted Sh1.17 trillion for servicing public debt in the 2021/22 financial year, compared to Sh958.4 billion in FY2020/21.
