Consolidated Fund Service
Kamau Thugge
Ken Gichinga
Mentoria Economics

Kenya’s growing debt pain to be felt from 2019

Despite repeatedly insisting that Kenya’s public debt that currently stands at $50 billion and is projected to hit $60 billion by 2020 and $70 billion in 2022 is within sustainable levels, challenges in settling maturing syndicated loans has exposed the burden facing Treasury in debt management.

This is based on the reality that public debt obligations is the first charge item under the Consolidated Fund Service and in light of sub-par ordinary revenue performance, meaning the government must always prioritize meeting its financial obligations to creditors.

This has become the most prudent option owing to the fact that Treasury can ill-afford to impose more hikes in taxes that are bound to overburden Kenyans who are already overtaxed.

National Treasury Principal Secretary Kamau Thugge said the government has rolled out plans of going to the international markets to source for cheap funds that will help settle two loans set to mature in 2019.

“We are going back to the international market. This is about lengthening the maturities of the debts that are falling due. It will not increase our debt. It is just a rolling over of the syndicated loan,” Mr Thugge said.

This has been achieved through issuance of long term tenors with high volumes to increase liquidity in the secondary market, something that has been realized by increasing the average maturity of Kenya shilling denominated securities to 4.13 years and 6.31 year for treasury bonds as at June 2018.

Analysts say that seeking for an extension of the maturing debt for at least 10 years is critical not only in safeguarding against default but more importantly avoiding the pitfalls of expensive loans to repay those falling due and also free more revenues to invest in development projects.

“The nature of public debt is that is takes the first charge on a country’s resources, ahead of other national expenditures. Therefore, one of the techniques of prudent debt management is to reduce the instalment amounts by lengthening the maturity of the debt facility,” said Ken Gichinga, managing director at Mentoria Economics.

Though seeking for longer tenures for the debts falling due is ideal, Kenya will be going to the international markets at a time when the market fundamentals are not entirely favourable.

For officials at the Treasury, the term refinancing risks is one that often sends shivers down their spines and thus the quest for longer average term-to-maturity of loans allowing more time to repay.

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