Kenya to Rely on Domestic Loans After Dollar-Debt Binge Proves Risky
Kenya to Rely on Domestic Loans After Dollar-Debt Binge Proves Risky
Kenya will rely on domestic borrowing to fund budget deficits in a new debt-management strategy to reduce the fiscal risks arising from a binge on Eurobonds and syndicated loans.
Treasury officials of East Africa’s biggest economy are targeting domestic borrowing at 72% of the total in the next three fiscal years, according to a medium-term debt-management strategy presented to lawmakers on Thursday. That compares with a previous three-year target of 62%.
Kenya will issue “fewer but larger-sized” benchmark bonds and short-term paper “will only be used for cash-management purposes and not as a budget-financing instrument,” according to the document.
The share of planned foreign commercial debt will increase to 13% of total credit in 2020, according to the proposal, from 4% last year.
Key Highlights:
- About 35% of domestic debt matures this year, posing a high refinancing risk, Treasury said. The amount is a drop from 43% last year.
- Total public debt in nominal terms was 6.01 trillion shillings ($59.3 billion) by the end of 2019, or 58% of gross domestic product. Internal loans accounted for 49%.
- Kenya’s debt-to-GDP ratio was 51.1% last year, against a 70% sustainability threshold by the World Bank.
- Treasury is also exploring issuance of local-currency debt in overseas markets.
- It plans an over-the-counter trading platform for government debt in the fiscal year beginning July.
- To diversify funding instruments, Treasury could issue zero-coupon bonds, indexed bonds and undertake liability-management operations including bond exchanges.
- The budget gap could narrow to 571.2 billion shillings, or 4.9% of GDP, in the year to June 2021, from an estimated 657.4 billion shillings, or 6.3%, this fiscal year. Treasury will plug the hole using net external borrowing of 345.2 billion shillings and domestic loans of 222.8 billion shillings.
- Treasury plans to cut 2020-21 expenditure and net lending by about 4% to 2.74 trillion shillings (23.6% of GDP), from 2.87 trillion shillings (27.7% of GDP) in the 12 months to end-June 2020.
- Public-debt servicing costs will climb 10% to 630.1 billion shillings in the fiscal year starting July. The payments include 456 billion shillings of interest payments and 174.1 billion shillings in principal repayments.
To contact the reporter on this story: David Herbling in Nairobi at dherbling@bloomberg.net
To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, Helen Nyambura, Rene Vollgraaff
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