Kenya sinks deeper into debt with Sh644.4b loan
Lewis Njoka @LewisMjoka
Kenya debt burden soared by Sh644.41 billion in the six month between January 1 and June 30 this year, raising the total government debt to Sh6.693 trillion up from Sh6.049 as at December 31 last year.
The Central Bank of Kenya (CBK) weekly bulletin released last Friday, most of the debt is owed to external sources at Sh3.52 trillion while domestic debt stands at 3.178 trillion, as of June 30 this year.
Of the Sh3.52 trillion external debt, US dollar public and publicly guaranteed external debt comprises Sh33.01 billion while Kenya shillings public and publicly guaranteed external debt stands at Sh3.516 trillion.
The government managed to borrow locally Sh328.72 billion between January 1 and July 30 taking domestic debt to Sh3.27 trillion as of July 30 up from Sh2.94 trillion on December 31, 2019.
A total of Sh199 billion was borrowed between April 1 and July 3 when the country began feeling the adverse effects of the Covid-19 pandemic.
As of March 31 this year, the gross domestic debt stood at Sh3.072 trillion but has since risen to 3.271 trillion as of July 30.
Churchill Ogutu, the head of research at Genghis Capital says that banks, unable to lend due to the Covid-19, are buying government hence a huge deficit in budget that has to be met through borrowing.
“What has been the saving grace for the government right now is that the banks are not lending so the money they are having, they are deploying into government securities,” said Ogutu.
“The banks are heavy on cash but cannot lend because of the uncertain environment, hence government domestic borrowing has gone up,” he added.
Additionally, the government has not been able to meet the target in terms of external borrowing and has approximately Sh28 billion shortfall to be met domestically, according to Ogutu.
Ogutu warned that Kenya could hit the debt ceiling soon saying it was unsustainable considering that the public debt obligation for this year was already high at about Sh1 trillion.
“At Sh6.7 trillion, we are at about Sh2.3 trillion to hit the debt ceiling. With this trajectory, and we’ve been borrowing close to Sh900 billion a year, we could hit the debt ceiling by 2022/23 fiscal year.
Samuel Nyandemo, a senior economics lecturer at the University of Nairobi concurred with Ogutu saying the country was headed to a situation where the gross domestic product (GDP) could be suffocated by servicing debts.
“This will over-burden not only the economy but also the taxpayer. Servicing such a huge debt will mean that the government will be forced to tax more.
The tax base has already been suffocated with most sectors that contribute significant amount of taxes subdued by the Covid-19 lockdowns,” said Nyandemo.
Treasury bonds comprise the largest portion of the domestic debt at 70.23 per cent, followed by Treasury bills (excluding repos) at 29.06 per cent while other domestic debt comprises 0.71 per cent.