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Kenya's public debt set to fall on public-private funding of key projects

Xinhua, November 16, 2016 Adjust font size:

Kenya expects its public debt to fall below 50 percent of the Gross Domestic Product (GDP) in coming financial years following increased public-private partnership of key infrastructure projects.

"The increase in government support in the funding of heavy capital projects through the public-private partnership arrangement will help in reducing the rate of debt accumulation and, thus, maintain the net present value of public debt to GDP ratio at below 50 percent," said the Treasury Tuesday in the budget policy statement for the financial year 2016/2017.

According to the Treasury, the government will continue borrowing from both domestic and external sources. From external lenders, however, the borrowing will mainly be on concessional terms limited to infrastructure projects with viable expected returns.

"Other alternative sources of financing the government may explore over the medium-term include the Islamic financing instruments, the Samurai market, Panda bonds and Diaspora bonds," the Treasury said.

However external borrowing will be done cautiously to minimize the degree of foreign exchange rate risk exposure associated with the debt portfolio, the Treasury said.

"The government will adopt a deliberate approach in diversifying currency structure to hedge against exchange rate risks especially to new loan commitments," said Treasury.

According to the Treasury, Kenya's debt remains sustainable based on various indicators. For instance, public sector debt to GDP ratio currently stands at 48.3 against the threshold of 70.

"The sustainability of Kenya's debt depends on macroeconomic performance and prudence in borrowing. Significant uptake of domestic debt could lead to refinancing risk and expected increase in the US interest rates could also exert pressure on the debt sustainability position due to expected rise in interest rates in the global markets," said the Treasury. Endit