China has been named the leading bilateral lender to Kenya by the Central Bank of Kenya (CBK) accounting for 67% of its external debt followed by Japan(14%), France(7%) with other countries accounting for 11%.
A new analysis of the composition of Kenya’s bilateral lenders by the Central Bank of Kenya (CBK) shows that China controlled less than one per cent of Kenya’s external debt portfolio in 2006.
By June 2011, however, the Asian country was at position three, behind France and Japan, on the list of top lenders.
This position drastically shifted after the Jubilee government took over in 2013 in favour of China, which now accounts for 67 per cent of Kenya’s external debt, up from just 13 per cent in June 2011. Japan’s share has dropped from 44 per cent in 2011 to just 14 per cent in June 2020. France’s has also whittled down from 16 per cent to 7% at the moment.
This is according to a status report on Kenya’s Public Debt presented to the Senate Committee on Finance and Budget by the Central Bank of Kenya (CBK) Governor Dr Patrick Njoroge on September 15th 2021
“The leading bilateral lender shifted from Japan to China between 2011 and 2020,” CBK Governor, Dr Patrick Njoroge.
Dr Njoroge blamed Kenya’s increased debt on a rise in fiscal deficit largely due to development expenditure such as infrastructure, but also recurrent expenditure in key sectors such as education and health as well increased guaranteed debt.
Kenya’s debt trouble was also attributed to worsening terms on new loans, such as lower concessionality and increased commercial loans and exogenous economic shocks such as drought and Covid-19.
Dr Njoroge said the overarching concern is limited capture of the returns from expenditures or investments through increased exports, taxes, and faster economic growth.
Kenya’s total debt service to revenues increased to 57% in 2019 from 17 per cent in 2012 due to an increased debt stock and changing terms on new loans including one-off repayment of syndicated loans and Eurobonds in 2019.
“This trend is expected to reverse in the medium term due to improving terms on new loans, and the restructuring of external commercial loans that have heavy maturities and high interest cost,” Dr Njoroge
While Kenya’s public debt to GDP ratio declined from 64.1% in June 2003 to 38.1% in June 2012, it has since increased thereafter driven largely by spending on infrastructure and more recently, COVID-19 related spending.
According to the latest CBK Weekly Bulletin, Kenya’s domestic debt hit Kes 3,866.06 Billion as of September 10th 2021 compared to Kes 3488.54 Billion on 31st December 2020 and Kes 3569.84 Billion on 31st March 2021.
Banks are the biggest holders of Government domestic debt at 50.55% on September 10th 2021 followed by Pension funds(31.21%), Insurance companies( 6.68%), others(6.11%) and parastatals( 5.45%).
Remittance inflows totalled US$ 312.9 million in August 2021 compared to US$ 274.1 million in August 2020, a 14.2 per cent increase. However, remittance inflows declined by 7.1 per cent compared to US$ 336.7 million in July, in line with seasonal factors. The cumulative inflows for the 12 months to August 2021 totalled US$ 3,481 million compared to USD 2,921 million in the same period in 2020, a 19.2 per cent increase.
However, CBK maintains that Kenya’s debt sustainability is expected to improve as fiscal consolidation progress and exports and output recover from the global shock.