Ukur Yatani

National Treasury Cabinet Secretary Ukur Yatani during an interview at his office on February 10, 2021.

| Jeff Angote | Nation Media Group

Debt repayment pain: How creditors will share out Sh1trn

The Exim Bank of China has now toppled the Trade and Development Bank (TDB) to become Kenya's largest external lender.

This has elevated the Chinese government's bank to the top of the food chain on the list of creditors lining up for a piece of the Sh1 trillion debt servicing fees in the new financial year.

An analysis of the latest debt data from the National Treasury has also revealed that commercial lenders have outpaced the traditional, bilateral, multilateral and concessional lenders, who offered cheaper and more patient credit with more flexible repayment terms.

This underlines the unrelenting march to the East for more readily available infrastructure-backed loans, in a shift that has pushed Western countries on the periphery and further down on the list of big lenders to Nairobi.

The Jubilee government's unparalleled borrowing spree has now for the first time pushed Kenya's annual debt-servicing expenses above the Sh1 trillion mark in the 2021/22 financial year, up from the current Sh958 billion.

Interest on external debt will consume Sh166.8 billion, while domestic loans will attract interest of Sh370.4 billion on bonds and bills. In total, interest will account for Sh537 billion, which is 52 per cent of the total cost of debt.

On its part, the government will spend Sh486.2 billion on debt redemptions, which is equivalent to repaying the principal. This will be shared almost equally among the internal and external debt redemptions.

So who will receive most of the debt servicing billions? After the Jubilee government started fundraising for its infrastructure projects, western countries that initially gave loans but with 'interference in domestic matters' started fading out of the biggest creditors to Kenya as Nairobi was turning towards the East.

Exim Bank of China

This is how China came to the table and has since edged out other creditors.

Treasury data shows that debt servicing fees to the Exim Bank of China will more than double from the current Sh42.6 billion to Sh99.3 billion in the new financial year that starts in July.

Kenya floats 202 billion shilling Eurobond amid rising debt

This will elevate the Exim Bank of China to the pole position of Kenya's single largest creditor in the 2021/22 financial year, having displaced a consortium of investors among them TDB and those who bought Kenya's four Eurobonds.

The official Treasury data shows that out of this, Sh70 billion will go towards principal repayments or what is known as debt redemption, while the remaining Sh29.3 billion will be interest.

The Exim Bank, also known as the Export-Import Bank of China, is a state-funded and state-owned bank with the status of an independent legal entity. The lender operates directly under the leadership of the State Council and is dedicated to supporting China's foreign trade, investment and international economic cooperation.

It started gaining importance in Kenya's debt market after the government went out looking for funders of the big infrastructure projects among them the Sh327 billion Standard Gauge Railway and major roads.

Following a number of meetings, the Chinese government warmed up to the infrastructure plan and opened its purse to Kenya. The only condition was that it would only extend loans to infrastructure projects being built by Chinese companies in Kenya.

The second largest debt expenditure in the new financial year will be a group of new loans (Sh62.6 billion), while Trade Bank will now come in third, receiving a total of Sh53.1 billion in debt redemptions for a syndicated loan.

The International Development Association (IDA), the part of the World Bank that lends to the poorest countries, comes in next with Sh21 billion-debt repayment expenditure, followed closely by Italy with Sh20.6 billion. These figures are a total of both debt redemptions and interest fees.

The China Development Bank comes in next with Sh20.6 billion, cementing China's footprint on Kenya's debt expenditure. Poland will receive Sh18.2 billion, a bulk of which will go towards servicing interest fees.


Kenya will then spend a total of Sh49.8 billion servicing debt expenditure for the four Eurobonds. Looked at individually, the 2018 $USD2 billion Eurobond will attract Sh17.1 billion in repayments in the new year.

The debut Eurobond will attract interest repayments of Sh15.1 billion, while the 2019 international sovereign bond will receive Sh6.9 billion. Kenya will pay Poland Sh18.2 billion in the new year, while the African Development Bank (ADB) will receive Sh11.5 billion. Other lenders are France (Sh10.5 billion), Japan (Sh6 billion), Spain (Sh6 billion) and Germany (Sh4.6 billion).

The European Investment Bank , the lending arm of the European Union which markets itself as the world's largest multilateral lender will receive Sh2.6 billion, Belgium (Sh2 billion) and the International Fund for Agricultural Development, a specialised United Nations agency based in Rome, will get Sh1 billion. The rest of the lenders including the United States, Finland, Kuwait, Abu Dhabi, Austria, Afrexim Bank, BADEA, Opec, Denmark and Netherlands will receive less than Sh1 billion each.

In total, the external lenders will receive Sh406 billion in the new financial year, compared to the current Sh256 billion, which translates into a 58 per cent jump.

The internal debt redemptions will consume Sh246.8 billion while the interest payments for internal debt on bonds and bills will rise to Sh370.4 billion.

This comes at a time when the National Treasury has set in motion plans to increase the debt ceiling.

This is after the 2021 Medium Term Debt Management strategy revealed that the government must increase the debt ceiling beyond Sh9 trillion to get the resources to finance the new financial year .

IMF issues warning on Kenya's debt as govt. maintains level is sustainable

The debt strategy document notes that it will be impossible to fund the new budget for the 2021/22 and into the medium term if this limit is not increased.

"To accommodate the fiscal deficits in FY2021/22 and into the medium term, the statutory debt limit has to be expanded," the document reads in part.

"As a result, the implementation of this strategy may require the revision of the debt ceiling through the amendment of the PFM act based on future borrowing requirements," the document notes.

Treasury Cabinet Secretary Ukur Yatani said the debt accumulation is the result of fiscal deficits and that when it becomes necessary to increase the ceiling, Treasury will table that request in Parliament.

The budget for the 2021/22 is Sh3.02 trillion, which is Sh216 billion more or a 7 percent increase from the Sh2.81 trillion in the current financial year.

External borrowing

This expansionary budget will leave the country with a deficit of Sh937.6 billion (7.5 per cent of GDP).

This fiscal deficit will be financed by net external borrowing of Sh345.5 billion (2.8 percent of GDP), and net domestic borrowing of Sh592.2 billion (4.7 per cent of GDP).

Kenya's stock of debt as at December 2020 stood at Sh7.2 trillion, which is equivalent to 65.6 per cent of the Gross Domestic Product (GDP). Total external debt was Sh3.7 trillion while the domestic debt was Sh3.4 trillion. Mr Yatani defended the ongoing borrowing on grounds that Kenya needs the money to prop up the economy and pull it out of the recession brought about by the Covid-19 pandemic.

"In the last financial year, our budget was done with a normal economic situation. There was no Covid. There were no locusts and there were no floods. So the projections were based on a normal life," he said.

The CS said experts at the debt office under the National Treasury are working hard to ensure that the country restructures its loan portfolio to ease the burden.

"We are now unpacking our loan portfolio. The multilateral loans are okay, the concessional loans are okay, but we are now looking at how to deal with commercial loans," Mr Yatani said.

Treasury is also looking for an additional Sh70 billion-debt suspension from a World Bank debt repayment relief under the Debt Service Suspension Initiative.