Treasury needs to go slow on expensive debt

The Treasury has sought a new $750 million loan from international investors, in addition to the $2 billion inaugural sovereign bond issued in June, which was four times over-subscribed.

While it is good that the country is still able to draw foreign investor confidence – particularly at a time when Kenya’s insecurity is making international headlines – the Government appears to be taking undue full advantage of this by increasing the repayment burden on Kenyan taxpayers. This year alone, the Government has borrowed Sh247 billion from the international market.

Government data shows that interest on domestic and foreign loans rose 35.8 per cent over the last quarter of 2013/14 to hit Sh38.5 billion in the three months to September 2014. This means interest payments took up 14 per cent of the Sh276.6 billion the Treasury spent in the quarter to September. This makes loan servicing the second-largest expenditure item after teachers’ salaries. This means we are spending more on interest payments than for instance, equipping our police service to deal with the Islamist insurgency or improving access to healthcare or lowering the high levels of unemployment.

Although there is a high appetite from international investors, the Government should be cautious. After all, this money is not being dished out for free. Further, if the shilling continues to depreciate and moves closer to Sh100 to the dollar, taxpayers will spend more to service the debt because it is dollar-dominated.

Already, the Treasury is seeking to double its foreign debt ceiling from Sh1.2 trillion to Sh2.5 trillion, which is not necessarily a bad thing if the money is going towards growth-enhancing sectors; but are taxpayers able to deliver on the repayment promise the Government is giving international investors?