The interest charged on Kenya’s public debt rose by Sh56 billion in the 2016/17 fiscal year compared to the previous period, with debt payments gobbling up more than a third of the country’s annual revenue.
Latest Treasury data from the 2017 Budget outlook and review paper (BROP) shows that the country spent Sh271.3 billion in interest payments, of which Sh212.9 billion went towards domestic debt interest and Sh58.4 billion in external debt interest payments.
A number of experts have been raising concerns over the sustainability of Kenya’s recent spike in public debt, which by the end of June had risen to Sh4.4 trillion, equivalent to 51.5 per cent of GDP. The Treasury on the other hand has maintained that the debt remains sustainable, citing a growing economy and investments in infrastructure.
“Foreign interest payments amounted to Sh58.4 billion, compared to Sh42.5 billion in the same period of the fiscal year 2015/16. The domestic interest payments was Sh212.9 billion, higher than Sh172.9 billion paid in the corresponding period of the previous financial year,” says the Treasury in the budget review paper.
“Expenditure on domestic interest payments was above the target by Sh31.1 billion while foreign interest was below target by Sh4 billion.”
The government has leaned heavily on borrowing to cover an ever widening budget deficit, which for the 2016/17 fiscal year stood at Sh709.4 billion, equivalent to 9.2 per cent of GDP.
On the domestic front, the interest on short term government securities stands at 8.13 per cent for the 91-day Treasury bill and 10.96 per cent for the 364-day paper, while bonds are offering yields of between 11.5 and 13 per cent.
Externally, Kenya has been servicing the interest on the $2.8 billion Eurobond taken up in mid-2014, at a coupon rate of 6.785 per cent for the 10-year and 5.875 per cent for the five year tranche.
The country’s reclassification into a middle income country has seen it lose access to some of the concessional borrowing previously available from international finance institutions, pushing the Treasury towards more expensive commercial loans.
The BROP shows that out of the net foreign financing of Sh385.7 billion in 2016/17, Sh186.3 billion came from commercial loans.