CBK cautions Treasury on cost of loans

CBK Governor Dr.Patrick Njoroge. [Edward Kiplimo/Standard]

The Central Bank of Kenya (CBK) has cautioned the National Treasury over the cost of refinancing the country’s debt and urged the ministry to seek cheaper options.

CBK Governor Patrick Njoroge said yesterday that while Kenya’s debt may not be a problem yet, Treasury needed to look at different sources of funding, reducing the gap between revenues and the budget and refinancing the huge dollar debts cheaply.

“Our debt to GDP by September was about 56.5 per cent. The issue is not in the number but the evolution of the debt,” said Dr Njoroge at a press briefing in Nairobi, a day after the Monetary Policy Committee’s decision to retain the benchmark lending rate at 13 per cent.

Refinancing basically means the replacement of an existing debt obligation with another under different terms, usually more favourable to the borrower. The country’s debt, which is currently at Sh5.157 trillion, is proving problematic as huge dollar-dominated loans become due in quick succession.

In March, Kenya will have to pay a commercial loan to Britain’s Standard Chartered Bank amounting to $766 million (Sh76.6 billion) as well as a $750 million (Sh75 billion) five-year Eurobond by June.

Before the end of the same month, another Sh37.1 billion syndicated loan arranged by Trade and Development Bank, formerly PTA Bank, will be due, bringing the total of loans to be paid in six months to Sh200 billion.

Njoroge warned that taking up other loans to repay these maturities must be measured against cost and duration of the new loans.

“There is scope for refinancing or reorganising the debt where the amount does not change, but you potentially pay expensive debt with cheaper debt so the cost reduces. These are standard debt management questions,” he said.

CBK noted that presently, Treasury has been improving the quality of debt by lengthening maturities.

Last year, with the help of Trade Development Bank, Treasury refinanced a short-term syndicated loan with a seven-year syndicated loan to be paid off twice a year as opposed to one bullet payment.

The National Treasury also borrowed Sh200 billion Eurobond in March last year, which was used to pay off a syndicated loan but also extended repayment periods to 2028 and 2048.

However, Njoroge said, unlike last year, this year is plagued by global anxiety over the expected slowdown of the international economy.