Treasury borrowed Sh100 billion from a syndicate of banks, pushing up Kenya’s share of costly commercial loans, even as it plans to issue its third Eurobond before June.
Latest Statement of Actual Revenues and Net Exchequer Issues by Treasury indicates that commercial loans borrowed by the end of March increased four-fold to Sh100 billion, up from Sh25 billion in February.
This is as a cash-strapped Government continued to refinance debts by borrowing to repay, rather than retire its maturing debts from its own revenues.
The money was used to retire another syndicated loan of Sh78.7 billion from Standard Chartered Bank that matured last month.
This saw the country’s total debt repayment rise to Sh538.2 billion from Sh370.6 billion in February.
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The loan arrangement, which was approved by the Cabinet in January, was reportedly arranged by Eastern and Southern African Trade and Development Bank (TDB), formerly PTA Bank and Standard Chartered Bank.
In June, Treasury will repay part of the 2014 Eurobond principal, Sh78.3 billion, with reports indicating that Kenya will issue another Eurobond to offset this loan.
“The government also intends to refinance the five-year Eurobond maturing in Financial Year 2018/19, through the issuance of bonds in the international capital markets,” Treasury said in one of its documents.
There have been some reports that Treasury will soon hold a roadshow in a bid to attract investors to buy into its third Eurobond, dollar-denominated debt security issues by a sovereign country.
Also, before the end of June, another Sh37.1 billion syndicated loan arranged by TDB will have to be paid, bringing the total of loans to be paid in six months to Sh200 billion.
As of February, the publicly guaranteed debt stood at Sh5.4 trillion, having increased 200 per cent since March 2013 when President Uhuru Kenyatta took office. About six years ago, the country’s debt publicly guaranteed debt stood at only Sh1.8 trillion.
An increasing fraction of the loans that the Government has been raking in are expensive commercial loans such as the Eurobond and Syndicated loans with harsh terms, including shorter or no grace period, higher interest rates and shorter repayment periods.
As such, Kenya’s uptake of expensive credit has pushed debt into risky levels, with the International Monetary Fund (IMF) flagging it as a nation that is more likely to default on its debt obligations.
“The higher level of debt, together with rising reliance on non-concessional borrowing, have raised fiscal vulnerabilities and increased interest payments on public debt to nearly one-fifth of revenue, placing Kenya in the top quartile among its peers,” the IMF said in a report released Tuesday.
The IMF found that an increasing load of foreign interest payment was one of the factors that contributed to the country’s risk of defaulting on its external debt repayment, technically known as debt distress.
With dwindling export earnings and tax revenues, Kenya will retire a massive Sh200 billion of commercial loans in the first half of 2019. Kenya first went for a Eurobond in June 2014 by raising Sh200 billion which was split into two notes.
There was a Sh51 billion, a five-year bond paying an interest of 5.86 per cent, and a Sh153 billion, 10-year note with a yield of 6.88 per cent.
