- The Public Debt Management Office (PDMO) at the Treasury says it has cut projected spending on foreign debt by 18.06 percent to Sh328.13 billion after some State-owned firms repaid some of the loans.
- The Treasury had projected that some parastatals would default on loans tapped from foreign lenders, forcing the State to step in given it had guaranteed the debt.
- The Covid-19 pandemic battered Kenya’s tax revenue collection at a time when more of its debts were falling due.
Kenya has saved Sh72.33 billion in foreign debt payments to countries such as China after parastatals resumed servicing loans earlier than projected in the wake Covid-19 economic hardships, the Treasury has disclosed.
The Public Debt Management Office (PDMO) at the Treasury says it has cut projected spending on foreign debt by 18.06 percent to Sh328.13 billion after some State-owned firms repaid some of the loans.
The Treasury had projected that some parastatals would default on loans tapped from foreign lenders, forcing the State to step in given it had guaranteed the debt.
Revised budget estimates tabled in the National Assembly shows expenditure on principal sums of debt due to top bilateral lenders this financial year has been slashed by Sh60.03 billion, while interest payout is down Sh12.31 billion.
“External debt redemptions revised downwards following better performance of parastatals that were initially thought could not service their external debts due to adverse impact of Covid on the economy,” PDMO director-general Haron Sirima said via text.
The data shows that China’s Exim Bank, Japan, Italy, Germany and France accounted for half of the reduction in debt obligations for this fiscal year ending June 2022.
The Covid-19 pandemic battered Kenya’s tax revenue collection at a time when more of its debts were falling due.
Firms also faced reduced demand for their products following layoffs, triggering loan defaults.
Debt due to China’s Exim Bank, which has funded some of Kenya’s mega infrastructural projects such as the standard gauge railway, fell by Sh19.66 billion to Sh77.03 billion — marking the biggest drop among the bilateral lenders.
Repayments to Japan have been slashed by Sh5.99 billion to Sh5.15 billion and Italy by Sh5.13 billion to Sh14.31 billion.
Those to Germany and France are down Sh3.06 billion and Sh2.20 billion to Sh3.88 billion and Sh12.67 billion respectively.
The Sh72.33 billion savings will offer relief to the Treasury that is facing mounting unforeseen expenditures that will see taxpayers spend Sh108 billion more in the budget for the financial year ending June.
The Treasury usually borrows cash from foreign lenders for on-lending to State-owned enterprises (SOE) that play a strategic role in the economy, but cannot get funding on their own because of their weak financial positions.
As a prerequisite, the Treasury should ensure the projects funded through on-lent credit “hold a top-level priority on the development agenda of the government”.
In the debt disclosures for the year ended June 2021, the Treasury revealed outstanding stock of on-lent loans to State-controlled entities stood at Sh921.93 billion, representing a growth of nearly Sh54.93 billion, or 6.34 percent, over Sh867.01 billion a year earlier.
“A majority of the SOEs are facing financial constraints and have applied for consideration of their loans to be written off,” Treasury officials wrote in the annual debt report for the period through June 2021.
At the time, the deteriorating financial health of the State-controlled firms had been laid bare, with the Treasury disclosing it had written off Sh37.06 billion in on-lent loans.
The on-lent loans written off were part of the slightly more than Sh74.01 billion that were in arrears in the review period, comprising Sh38.03 billion in principal sums and Sh35.98 billion in interests.
The Treasury disclosures had shown that 41 of 56 parastatals which had government on-lent credit had failed to service it during the year ended June 2021.
Most of parastatals which had defaulted on their on-lent loans by end of last financial year were in water and irrigation (Sh22.72 billion), transport and infrastructure (Sh17.46 billion), planning and devolution (Sh15.56 billion) and agriculture and livestock (Sh12.64 billion).
The Treasury flagged parastatals in water and irrigation as notorious defaulters on their total debts which topped Sh169.44 billion at the end of June 2021.
The data showed only Nyeri Water & Sewerage (Sh65.23 million), Eldoret Water & Sewerage Co. Ltd (Sh39.96 million) and Lake Victoria North Water Services Board (Sh10.65 million) serviced their on-lent credit facilities for the year ended last June out of more than 15 water and sewerage firms with outstanding loans.
“Most water works development agencies face financial difficulties and, thus, are unable to meet their on-lent loans obligations,” the Treasury said in the report.
“An inter-ministerial committee has been constituted to review all water sector loans and recommend the mitigation measures to be adopted.”