Kenya has had the worst financial year with the recent borrowings sinking the country into debt and now it is planning to borrow 300 billion shillings Eurobond under the strategic commercial debt-financed deficit.
Should this push through, this will make the third borrowing through the Eurobond issuance. The country has an alternative to raising the funds, however, considering the financing terms in the commercial sector, it could prove costlier especially if it is through syndicated loans. As such, it can hardly be depended upon in addressing emergencies.
From concessional debt grants from others nations, donor support, and project loans like the one issued by China, the government is looking to source 600 billion shillings to fill the rest of the gap.
Apparently, the country is increasingly becoming dependent on loans for survival. This poses serious implications to the economy. The first issue of this sovereign bond was in June 2014 and the second one was in February 2018.
On May 2, the budget estimates tabled in the National Assembly contained the approved spending and financing plans for the financial year that starts July 1.
According to a report summarized from the national budget, the government will carry on with the diversification of the sources of financial resources over the medium term through upholding a presence in the international capital markets.
The National Treasury also reiterated that it would do its best to raise as much debt as it can through the concessional terms, which it claims will be purely at the discretion of the lenders.
The report noted that non-concessional and commercial external borrowing will be limited to development projects – like high capacity roads – with high financial and economic returns. The projects will be used to generate income before they are paid off.
“We are seeking approval from legislators before presenting the budget statement in the House mid next month,” Treasury Cabinet Secretary Henry Rotich said.
Previously, CS Rotich had noted that the country was likely to remain in the sovereign market in sourcing funds saying that any country that has tried it has never left the market.
From the February debt, the government is paying an interest of 4.75 billion shillings in four months to June 30. Furthermore, it will pay 15.5 billion shillings in the next financial year beginning July 1.
Funny enough, the country hasn’t fully paid the 2014 debt issue, which raised a little more than 275 billion shillings. This was against the intended 200 billion shillings. The expenditure of the proceeds, as you can recall, saw the beginning of a seemingly perpetual storm over corruption allegations.
The additional 75 billion shillings in the 2014 debt is repayable by mid-2019. This is ridiculous. Admittedly, the government is broke and is evidenced by the pivotal expenditures it has put on hold, which makes some wonder if it goes ahead and borrows again, how will it pay?
The state’s appetite for debt-funded developments has and will always cause a stir among critics. But can you blame them? They have the country’s best interests at heart, at least for the growth of the economy.