The government’s desperation for short-term credit will see taxpayers pay up to Sh22 in interest for every Sh100 new loan contracted in the year ending June next year in one year alone.
The government’s desperation for short-term credit will see taxpayers pay up to Sh22 in interest for every Sh100 new loan contracted in the year ending June next year in one year alone.
A new report by the Parliamentary Budget Office (PBO) )-- an office that advises Members of Parliament on budget planning -- has disclosed that for the Sh768 billion fresh loans in the 2024/25 fiscal year, Treasury will pay Sh172 billion interest during the same year alone.
Treasury plans to borrow Sh413 billion from the domestic market during the year to June 2025. During the same year, the Treasury will pay Sh127.4 billion in interest for the same loans, though some of them are long-term and will continue to attract interest in the following years.
Of the interest on domestic loans, Sh79 billion will be on Treasury Bills- whose tenure ranges between 90 and 365 days- while Sh32.2 billion interest will be on new Treasury bonds being floated during the fiscal year, the PBO’s budget explainer notes.
“Internal debt interest payments for the Financial Year 2024/25 amounts to Sh749.97 billion. Interest payments on treasury bonds amount to Sh654.22 billion which include Sh621.99 billion for various treasury bonds issued in previous years with a tenor of between three to 25 years and Sh32.23 billion for new treasury bonds that the government intends to issue in the FY 2024/25.
“Interest payments for treasury bills amounts to Sh79.53 billion, interest payments for government overdraft facility (Sh12.62 billion), Central Bank of Kenya Commission amounts to Sh3 billion and interest payment of pre-1998 government overdraft debt amounts to Sh600 million,” the PBO notes.
Overall, the cost of new loans being contracted from the domestic market during the year to June 2025 will be 30.8 percent in the 2024/25 fiscal year alone.
Treasury Bonds- which have tenures beyond a year, however- will continue to earn interest even after the fiscal year ends.
The high cost of borrowing underlines Treasury’s despair to seek short-term loans amid cashflow challenges to run its operations, which has seen it delay to disburse monies to counties and national government agencies.
During the current fiscal year- which ends June next year- Treasury projects to borrow Sh413 billion from the domestic market and Sh355.5 billion from external markets.
“Finally, interest payments for new loans to be procured in the financial year 2024/25 is projected at Sh44.71 billion which is 17.2 percent of total external debt interest payments,” the parliamentary think tank notes.
This means that for every Sh100 that the Treasury plans to borrow externally from multilateral lenders, other governments, and in commercial markets, it will pay Sh12.6 in interest in one year alone.
Treasury projects to spend a total of Sh1.01 trillion in total interest payments during the fiscal year to June next year, including on new loans that it will borrow during the year, and loans it has been servicing previously.
Total interest payments to external lenders will be Sh260 billion, with the biggest recipient being the Exim Bank of China (Sh46.72 billion), followed by the World Bank’s International Development Agency (IDA) (Sh26.73 billion) and Trade and Development Bank Syndicate Loan (Sh25.94 billion).
