Kenya takes out 10 new loans between April and August

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Economy

Kenya takes out 10 new loans between April and August


Ukur Yatani, Cabinet Secretary of the Ministry of National Treasury and Planning. PHOTO | FRANCIS NDERITU | NMG

Summary

  • Kenya took out ten new loans in the commercial, multilateral and international sovereign bond market in the five months to August as it moved towards the debt ceiling of 9 trillion shillings.
  • A new document presented to Parliament by Cabinet Secretary of the National Treasury Ukur Yatani shows that the government has taken out loans totaling 293.55 billion shillings.

Kenya took out ten new loans in the commercial, multilateral and international sovereign bond market in the five months to August as it moved towards the debt ceiling of 9 trillion shillings.

A new document presented to Parliament by Cabinet Secretary of the National Treasury Ukur Yatani shows that the government took out loans totaling Sh 293.55 billion between April 1, 2021 and August 31, 2021.

This shows that the government was borrowing an average of 58 billion shillings per month, as it showed no signs of slowing its appetite for debt.

The new loans were obtained to help close the budget deficit of 930 billion shillings in the 3.02 trillion shillings budget for fiscal year 2020/21.

The National Treasury document shows that on June 14, 2021, the government signed an international sovereign bond agreement of 110.17 billion shillings with Citi Group Global Markets Europe AG to fund the 2020/21 budget as part of the expenditure of development. The loan will be repaid in two equal annual installments on January 23, 2033 and January 23, 2034 at an interest of 6.3 per annum.

The government also purchased 82.62 billion shillings from the International Development Association (IDA) to “accelerate reforms for comprehensive and resilient financing of recovery development policy.”

“This aims to facilitate fiscal and debt reforms to make spending in government more transparent and efficient, as well as improve the performance of the domestic debt market,” the National Treasury document reads.

The loan also aims to facilitate power sector reforms to bolster the Kenya Power scandal and debt and put the country “on an effective green track”.

The loan will carry an interest rate of 1.25% per annum and a service charge at the rate of 0.75% per annum on the credit balance withdrawn.

The commitment commission rate is 0.5% per year on the financing balance not withdrawn.

The government also disbursed 53.02 billion shillings contracted from the International Monetary Fund (IMF) to finance the 2020/21 budget after a drop in revenue collection.

There is also an extended IMF 25.45 billion shillings credit facility to provide budget financing.

In addition, the government has also borrowed 13.85 billion shillings from IDA as part of additional second funding for the country’s Covid-19 health emergency response project, which largely involves the acquisition of Covid-19 vaccines.

The Samatar-Wajir road project will be funded to the tune of 2.2 billion shillings by the Saudi Fund for Development.

This involves the construction of the 90 kilometer road to improve the movement of people and goods between Isiolo, Wajir, Garissa and Mandera.

The government also borrowed 1.65 billion shillings from the Arab Development Bank for Economic Development in Africa to upgrade the existing Samatar-Wajir road to a first degree bitumen standard.

The road connects Samatar to the town of Wajir, the link with the northeastern regions of the country and the borders of neighboring Ethiopia and Somalia.

Phase II of the medical waste management project attracted 1.3 billion shillings from the Belgian government to finance the production, delivery and installation of 15 medical waste treatment plans in ecosteryl AMB series 250.

There is also funding of 1.2 billion shillings from CBC Banque SA of Phase II of the medical waste management project to finance materials, goods and services from Belgium.

As of June 2021, Kenya’s public debt stood at 7.7 trillion shillings according to official statistics from the Central Bank of Kenya (CBK).

It comes amid concerns over public debt which has grown exponentially since 2013, when President Uhuru Kenyatta’s Jubilee administration came to power, compounded by doubts about the country’s ability to repay loans.

This despite the fact that the country’s income has fallen significantly from the missed income targets caused by the ravages of the Covid-19 pandemic.

By the time the Jubilee administration came to power in 2013, the country’s public debt stood at 1.6 trillion shillings.

The latest of the new loans shows an increase in the government’s borrowing appetite from the 132.38 billion shillings of 10 new loans the government took out between September 1, 2020 and March 31, 2021.

A breakdown of new loans shows that the government borrowed 1.92 billion shillings per day or 79.94 million shillings per hour during the five-month period.

The new loans, the National Treasury document shows, have been used largely for budget funding, procurement of Covid-19 vaccines, road construction in parts of northern Kenya, medical waste management, financing tax and debt reforms, improving the electricity connection, among others.

The loan amount for the period, however, is a marginal reduction from the 322.18 billion shillings of 15 loans the government borrowed between May 1, 2020 and August 31, 2020, from various multilateral and commercial lenders.

Between September 30, 2019 and April 30, 2020, the government borrowed 132 billion shillings.

The Public Financial Management (PFM) law mandates the national treasury to periodically inform Parliament of the state of the country’s debt.

“At the end of every four months, the Cabinet Secretary submits to Parliament the statement of deferred, deferred loan balances, drawdowns and amortizations on new loans obtained from outside Kenya or denominated in foreign currency.” , reads Article 31 (3) of the PFM Act.

Yatani told the National Assembly’s Finance and National Planning Committee that the missed revenue collection target caused by the Covid-19 pandemic presented the government with no alternative but to borrow more.

“Our income is not up to date. The Covid-19 pandemic has really affected our income, ”Yatani told the committee chaired by Homabay County Representative Gladys Wanga.

The livestock marketing project in Kenya has also been funded to the tune of Sh2 billion by the International Fund for Agricultural Development.

The loan is intended to increase the income of 110,000 poor pastoralist households by primarily targeting youth and women in an environmentally friendly manner in selected project areas of the 10 participating counties.

This will be achieved through climate-smart production for small livestock and support for the development of the livestock market.

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