President Uhuru Kenyatta when he signed into law the Supplementary Appropriation Bill No. 2 of 2018 at State House, Nairobi.
Kenya’s external loan repayment would take up half of the current dollar reserves held by the Central Bank, new data from the World Bank shows. Normally, depleted dollar reserves leads to a country failing to import critical commodities such as petroleum.The findings from the World Bank have indicated that Kenya could be ill-prepared to service its Sh2.7 trillion external debt, of which Sh365 billion is falling due this year.Three commercial loans, including two from a syndicate of banks and a portion of the Eurobond, are maturing, making up most of the planned repayment.
A huge portion of the repayment will be in interest, citing the costs associated with the unabated borrowing. World Bank has warned that the country is already stretching its export earnings to repay loans as of 2017, a significantly easier period compared to today.“In the future, higher debt service payments, in part due to bullet repayments falling due on maturing international bond issues, coupled with rising global interest rates… exacerbating concerns about debt sustainability,” said WB on its analysis on Kenya and four other African nations.Others in watch-list are Cote d’Ivoire, Ethiopia, Gambia and Zambia whose foreign loan repayments had surpassed 15 percent of their respective exports.The Gambia has already defaulted on the loans.
Economic indicators Various indicators used in assessing the ability to repay debt are pointing south, including that annual exports – the main source of dollars, cover less than a third of the foreign debt. Total exports for the 2017, the latest available data shows, were shy of Sh600 billion – a far cry from the debt stock which is predominantly denominated in US dollars.Kenya is still considering loating another Eurobond, which will inadvertently elevate the country’s indebtedness to foreign lenders.Even with the planned borrowing, there is no guarantee that there will be willing lenders or they will provide loans at unattractive terms.
It is for this reasons that the World Bank has warned that Kenya is at high risk of defaulting on its external loans.The global lender noted that Kenya’s future debt service payments will rise steeply in the next three years, the same way Ghana’s, Zambia’s and Ethiopia’s did – all three teetering on debt default.
