Cheaper multilateral loans now top Kenya’s debt pile
National Treasury and Economic Planning Cabinet Secretary Njuguna Ndung’u (Centre) with Treasury Principal Secretary Chris Kiptoo (left) and his Economic Planning counterpart James Muhati ahead of the 2023/2024 budget statement reading in Parliament on June 15, 2023.
What you need to know:
- Kenya is increasingly relying on loans especially from the World Bank and the IMF due to the longer repayment periods and lower interest rates.
- Between 2001 and 2004, the ratio of multilateral debt service to loan stock stood at 3.6 per cent underlining the more favourable repayment terms.
Kenya’s multilateral debt grew to more than double its bilateral loans for the first time in June underlining the country’s gradual shift to cheaper concessional financing in recent decades.
According to the Central Bank of Kenya (CBK), the country’s multilateral debt hit a record Sh2.74 trillion in June translating to 50.2 per cent of Kenya’s Sh5.45 trillion external debt stock.
On the other hand, bilateral debt — a loan contracted by the government of a country with that of another -- dropped marginally to Sh1.33 trillion which is 24.4 per cent of the foreign debt pile.
The gap is the largest on record indicating Kenya’s faster uptake of external loans from multilateral financiers compared to bilateral creditors.
On the other hand, the nation’s multilateral debt stood at just Sh187.8 billion in June 1996 compared to bilateral debt of Sh127.75 billion translating to a gap of Sh60.1 billion.
Kenya is increasingly relying on loans especially from the World Bank and the International Monetary Fund (IMF) due to the longer repayment periods and lower interest rates.
An analysis by the National Treasury shows that between 2001 and 2004, the ratio of multilateral debt service to loan stock stood at 3.6 per cent underlining the more favourable repayment terms.
In comparison, the ratio of bilateral debt service to loan stock was more than double at 8.5 per cent and the highest was commercial debt, which had a ratio of 29 per cent during the same period.
“The average debt service cost relative to debt stock is 3.6 per cent for multi-lateral, 8.5 per cent for bilateral, and 29 per cent for commercial debts. The high cost of servicing this debt is due to its onerous terms: shorter repayment period and market interest rates,” said the Treasury.
Analysts say the shift to multilateral lending is largely because loans from lenders such as the World Bank and the IMF are more flexible, especially in providing budgetary support.
Bilateral lending from countries such as China, say analysts, is mostly tied to specific development projects such as the Standard Gauge Railway (SGR).
The World Bank’s International Development Association (IDA) is by far the country’s largest multilateral lender, and by April this year, the country owed IDA some Sh1.4 trillion.
It is followed by the Asian Development Bank’s (ADB) Asian Development Fund (ADF) amounting to Sh475.2 billion and the International Monetary Fund (IMF) at Sh221.4 billion.
Others include the European Investment Bank (EIB) which the country owes Sh24 billion, International Fund for Agricultural Development (IFAD) (Sh29 billion), and others (Sh90 billion).
China is the largest bilateral lender to Kenya which owes Beijing Sh834 billion followed by Japan (Sh104 billion), France (Sh101 billion), Italy (Sh45 billion), Germany (Sh43 billion), and Belgium (Sh24 billion).
