Kenya set to borrow Ksh.1.5T in loans for new financial year

Kenya is set to borrow at least Ksh.1.5 trillion in the new financial year commencing in July according to final budget estimates tabled in Parliament last week.

The new borrowing plan matches up to estimated loan financing in the current financial year running to June 30- Ksh.1.456 trillion.

Out of its original Ksh.3.6 trillion spending plan, the government of Kenya is only expected to raise Ksh.2.038 trillion in revenues leaving a financing hole of Ksh.1.594 trillion.

A partly Ksh.62 billion of the deficit is expected to be funded by grants from development partners leaving behind a gap still in excess of Ksh.1.5 trillion.

According to the new Treasury documents, the government will borrow Ksh.952.9 billion to finance expenditures unmatched by revenues which largely comprise of development projects.

Net foreign financing is tabulated at Ksh.291.3 billion and comprises of a Ksh.124.3 billion Eurobond and Ksh.74.3 billion from the World Bank Development Policy Operations (DPO).

Other flows expected from external financing include Ksh.57.6 billion in disbursements from the International Monetary Fund agreed Ksh.255 billion loan program announced in April.

Net local borrowing is meanwhile estimated at Ksh.661.6 billion with the new loans representing proceeds from the issuance of Treasury bills and bonds to a largely local investor base.

Beyond the net financing, Kenya is expected to borrow Ksh.579 billion to settle maturing loans with local redemption representing the bulk of expected principal payments at Ksh.316.6 billion.

External principal loan repayments are meanwhile pegged at Ksh.262.4 billion.

Total borrowing in the 12 month period stretching from July 2021 to June 2022 could meanwhile be much higher should Kenya take Ksh.351 billion, likely in the form of new Eurobond debt, to refinance part of its external commercial loans.

Last week, the National Treasury ruled out the restructure of Eurobonds implying it will likely seek to redeem upcoming payments on syndicated loans.

Debt stock

Kenya’s continued leverage on borrowing is expected to impact its stock of debt with the debt expected to steadily rise in subsequent financial years.

For instance, the stock of public debt is expected to hit Ksh.8.6 trillion by June in 2022 before accelerating further to Ksh.10.7 trillion as of June 2025.

Kenya’s current stock of debt is expected to close June 2021 at Ksh.7.7 trillion down from Ksh.6.7 trillion in June 2020.

On average, this means that Kenya will have added an average Ksh.800 billion to its stock of public debt in each financial year since June 2020.

Optimism on the expansion of the economy is however set to smooth out fears on the sustainability of debt over the medium term to 2025.

For instance, the stock of public debt expressed as a percentage of gross domestic product (GDP) is expected to come down from 69.5 per cent in June 2022 to 62.2 per cent in June of 2025.