Kenya: We Can Bear Debt Load, Says Treasury

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Treasury says it is engaging international investors that Kenya owes money to ensure looming debt obligations are managed effectively without exposing the country’s coffers to liquidity pressures.

The revelation comes as a global rating agency warned that the government “will continue to face liquidity pressures” due to a combination of large financing needs and an increased reliance on sources of financing with less predictable costs, in particular, commercial external borrowing and short-term domestic debt.

“The risk of financing stress will increase as more commercial external borrowing, denominated in foreign currency, begins to mature over the next few years, particularly in an environment of rising global interest rates and a number of sub-Saharan African sovereigns seeking to refinance at the same time,” said Global rating agency Moody’s last week.

Moody’s noted that Kenya’s first Eurobond payment of $750 million (about Sh75.9 billion) (1 percent of forecast GDP) is due in June next year, followed by a second $2 billion (Sh202.6 billion) Eurobond maturing in 2024.

“A syndicated loan was originally taken out in 2015 and worth $750 million was extended by six months in October 2017, with 90 percent of investors agreeing to extend the maturity to April 2018,” added Moody’s.

“The increase in short-term domestic debt, to 9.4 percent of GDP at the end of FY 2016/17 from 3.3 percent of GDP five years earlier, will also test the capacity of the government to roll over a large stock of debt on the domestic market at moderate costs.”

But according to Treasury director general of a budget, fiscal and economic affairs Geoffrey Mwau, the risk of liquidity strain as the country’s loan obligations mature is remote as the Treasury is mulling negotiations with international investors to manage existing obligations effectively.

“We are engaging our partners in the financial world to do what we call liability management,” said Mwau last week in a telephone interview.

Mwau said under the plan, Treasury has options to obtain in form of various instruments including procuring new debt with longer tenure to pay off existing obligations.

This would ensure looming obligations do not coincide or cause strain to public coffers, said Mwau.

He was reacting to fresh warnings from the rating agency that piling debt and looming obligations pose fresh risks to the Kenyan economy.

Moody’s last week downgraded Kenya’s credit scores, citing pressure from the country’s rising debts but Treasury has disputed the ratings citing “strong fundamentals.”

The rating agency — which had last October said it had placed Kenya’s B1 rating on review for downgrade due to persistent deficits amid high borrowing costs — downgraded the issuer rating of the Kenya government to B2 from B1 but assigned a stable outlook.

The assessment added voice to rising concerns over the possible impact of heavy borrowing on Kenya’s future.

Last November, Treasury Secretary Henry Rotich defended the government’s decision to issue another Eurobond whose proceeds will partly be used to repay a Sh75.9 billion ($750 million) syndicated loan issued in 2015.

Mr Rotich, said then the fresh Eurobond and the Treasury’s negotiations with international investors to delay debt repayments did not indicate that the government was struggling to service its loans.

He said the Treasury was considering tapping the international debt markets to either finance infrastructure developments or for “liquidity management”.

The rapid rise in Kenya’s public debt to more than Sh4.4 trillion at a time when the taxman is struggling to meet his targets has raised fears over the sustainability of the loans.

“We are not doing anything strange. We can’t just enter there (international market) and disappear until we pay the loan,” Mr Rotich said then.

Kenya issued a debut bond worth $2 billion (Sh202 billion) in June 2014 that was also used to retire a $600 million (Sh60.7 billion) syndicated loan, whose maturity had to be extended by three months, and another budgetary spending including infrastructure projects.

The main opposition party at the time, Cord, later claimed that proceeds from the Eurobond had been misappropriated and none were used as intended, a claim the government refused.

In the current financial year that ends in June, the Treasury has budgeted for Sh658.2 billion, or 45 percent, of projected Sh1.44 trillion tax revenue for the payment of domestic and external loans.

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