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Kenya's public debt surges to 60 percent of GDP

Xinhua, May 23, 2016 Adjust font size:

Kenya's overall public debt has swollen to over 33 billion U.S. dollars or about 60 percent of East African nation's gross domestic debt, latest debt report showed Monday.

The faster surge of the debt is mainly attributed to increased borrowing from the domestic market through Treasury bills and bonds for budgetary support, according to the National Treasury's report.

Domestic debt currently stands at 17.2 billion dollars or 29 percent of the Gross Domestic Product, having risen by about 2 billion dollars since January.

"This increase is attributed to a spike in interest rates on short-dated securities which made investment in debt securities attractive," said Treasury, adding investors have shown great preference to short-term papers as opposed to bonds, heaping pressure on repayment of yields.

According the Central Bank of Kenya, which sells government securities, Treasury bills percentage of the total debt has risen from 26 percent in January to 33 percent last week.

The value of debt held in Treasury bills stands at 5.3 billion dollars, up from 3.7 billion dollars at the beginning of February.

Treasury bonds, on the other hand, account for 67.5 percent of the total domestic debt, down from 74 percent at the start of the year.

The value of debt held in the bonds last week stood at slightly over 11 billion dollars, a marginal increase from 10.6 billion dollars in January.

The East African nation's external debt, on the other hand, comprises of 51 percent of the total debt or 31 percent of the gross domestic product.

"The key driver of growth in external debt has been a disbursement from the 750 million dollars 2-year syndicated loan from commercial banks," said Treasury.

Debt owed to the International Development Association (IDA), Kenya's largest multilateral lender, amounts to over 4.5 billion dollars or 28.2 percent of total external debt while that owed to China, Kenya's largest bilateral lender, amounts to about 2.7 billion dollars, or 17.3 percent of the total external debt.

The main contributors of build-up in external debt were IDA, China and commercial banks (syndicated loan), said the report.

Kenya's public and publicly guaranteed external debt is denominated in several currencies, thus, mitigating against currency risk.

"The dominant currencies include the U.S. dollar and the Euro which account for 82.1 percent of the total currency composition," said Treasury.

Overall public debt, in particular external debt, is set to rise further as the National Treasury is currently seeking 2.2 billion dollars from donors for budgetary support.

Kenya's 2016-2017 budget will stand at 23 billion dollars against annual revenue collection of 15 billion dollars.

Over the years, the balance has mainly be met through internal and external borrowing, meaning the country is expected to sink further into debt.

The International Monetary Fund recently warned that Kenya's 33 billion dollars debt needs to be managed or else the country will find it hard to pay back the cash. Endit