Treasury reveals talks on Sh422bn foreign loan deals

The Treasury is negotiating with foreign lenders and countries for Sh422 billion loans, adding the burden on future generations to repay Kenya’s mounting debt.

The debt deals, which were tabled in Parliament last week, show that 44 loan agreements are pending approval or under negotiation between the government and development partners as at September 30.

There has been a rise in government borrowing since President Uhuru Kenyatta came to power in 2013 — a jump that some politicians and economists say is saddling future generations with too much debt.

The Treasury used the debt deals to convince MPs on the need to change the law and increase the cap for State borrowing to Sh9 trillion, offering it a leeway to jerk up the mounting public debt.

Kenya is in talks with the African Development Bank (AfDB) for loans amounting to Sh94.1 billion, China Exim Bank (Sh86.9 billion), Japan (Sh83.3 billion) and the World Bank (Sh51.3 billion).

The Treasury is seeking to ink 10 agreements worth Sh149.2 billion to finance infrastructure projects, Sh126.8 billion for 14 water and irrigation projects and Sh50.5 billion for power works.

Parliament’s budget office has raised the alarm over the mounting debts, arguing that the trend of Kenya borrowing to repay debts will be entrenched.

“Currently, the country has surpassed some of the debt sustainability thresholds, in particular the more distressing is the debt service ratio,” the budget office said in a notice to Parliament.

“This implies that the economy is not generating enough revenues to cover the debt servicing requirements.”

Debt service ratio stood at 49.4 percent in June against the threshold of 30 percent.

MPs last week unanimously voted to amend that law that restricts public debt at half of the gross domestic product (GDP) in a move that will allow the Treasury to borrow an additional Sh3 trillion in coming years.

The change will allow the Treasury to borrow more in line with its target of increasing public debt to Sh9.1 trillion in the year starting July 2023 from Sh5.8 trillion in June.

“It will reduce the flexibility in the budget as debt repayment, which is the first charge to the Consolidated Fund, will increase,” said Parliament’s budget office on the implication of raising the ceiling.

The government has defended the increased borrowing, saying the country must invest in its infrastructure, including roads and railways.

The increased debt has seen Kenya commit more than half of its taxes to repaying loans, leaving little cash for building roads, affordable housing and revamping the health sector.

In the year ended June, Kenya spent Sh826.20 billion on debt repayments or 55.4 percent of the Sh1.49 trillion tax collected in the period. It spent Sh306.52 billion on projects, accounting for 14.20 percent of the Sh2.16 trillion total national government expenditure.

Public debt stood at Sh5.81 trillion in June 2019, up from Sh5.04 trillion a year earlier, Sh4.41 trillion in June 2017, Sh3.62 trillion in June 2016, Sh2.83 trillion in June 2015, Sh2.37 trillion in June 2014 and Sh1.89 trillion in June 2013.