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Kenya's debt rises, risks raising borrowing costs

22 August 2013, 09:14

Nairobi - Kenya's public debt hit 51.7 percent of national output in the year to June, official figures showed on Wednesday, up from 44.5 percent the previous year and raising questions about the likely yield required for future external borrowing.

The National Treasury said Kenya's total public debt rose 16 percent to 1.89 trillion shillings in the fiscal year to June.

Kenya, which plans to spend 1.6 trillion shillings in the fiscal year that began on July 1, has in the past said it aims to reduce its ratio of debt to gross domestic product from around 45 percent in the medium term.

In documents filed to the International Monetary Fund in April, the government put the net total debt to GDP ratio at around 44.5 percent at the end of 2011/12.

The latest figure means that Kenya is likely to hit the 2 trillion shilling mark for its debt in the 2013/14 fiscal budget in which the government plans to plug a deficit of 329.7 billion shillings, or 7.9 percent of GDP, from both foreign and domestic sources.

"The overall increase was attributed to a net increase in both domestic and external borrowing," the Treasury said in its latest Quarterly Economic Bulletin.

"The increase is unsurprising given that the stabilisation in the public debt level in 2011/12 was largely achieved thanks to high inflation and strong recovery in the Kenyan shilling in late 2011 rather than through less accommodative fiscal policy," said Mark Bohlund, economist at IHS Global Insight.

"It is still likely to aggravate concerns about longer-term public debt sustainability and thus push up the required yield on a sovereign debt issue."

The Treasury said in June the gap would be filled by net foreign financing of 223 billion shillings and 106.7 billion net borrowing from the domestic market.

The foreign financing is due to include a debut $1 billion Eurobond the east African economy plans to issue later this year.

The rise in debt also comes at a time when the government is pushing hard to increase its revenue collection, after falling short of targets in 2012/13.

The Treasury said total revenue collected during the period was 847.22 billion shillings, against a target of 915.28 billion shillings, up from 748.17 billion shillings in 2011/12.

The government expects to raise revenues worth 1.027 trillion shillings in 2013/14.

Earlier in the year, the government faced demands for higher public sector wages and a strike by thousands of government employed teachers demanding higher housing, medical and transport allowances, while other civil servants including the police are also clamouring for higher pay.

The government met some of the teachers' pay demands but put the rest on hold.

Bohlund said Kenya had favourable growth prospects after recent discoveries of oil and China's pledge to invest in the country's energy and infrastructure sectors. However, he said the country's high budget and current account deficits put it among emerging markets that had to offer high interest rates to attract foreign lenders.

In July, the Central Bank of Kenya held its main lending rate at 8.5 percent.

- Reuters

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