It has been a week of bad economic news for Kenya with the revelation that the International Monetary Fund (IMF) has withdrawn the National Treasury’s access to a stand-by credit facility, the country’s credit rating has been downgraded, and public debt has reached an all-time high.
A report by the international business intelligence agency Bloomberg has revealed that the Government no longer has access to a Sh150 billion credit facility after it was withdrawn by the IMF. The precautionary credit facility was in place in case it was needed to fend off any ‘external shocks’ such as a rise in oil prices, or the weakening of the Shilling.
By withdrawing the facility the IMF are sending a message to international investors that the Kenyan government needs to cut the budget deficit (spending) and increase tax revenue (income).
The IMF’s representative in Kenya, Mr Jan Mikkelsen confirmed this week that the credit facility had been withdrawn. “The Bloomeberg story is correct”, Mikkelsen told the media, “although please note that the programme was not discontinued. Only access was lost”. The effect, however, will be the same: Kenya does not have, for the time being, access to these emergency credit funds at a time when it might need them.
The Central Bank of Kenya (CBK) does still, however, maintain currency reserves of $7,009 million, enough to cover nearly five months of imports into the country.
PUBLIC DEBT TO REACH SH1 TRILLION
A week ago the Treasury tabled a report in Parliament that in turn revealed that public debt will reach record levels of Sh 1 trillion in the financial year July 2018 to July 2019.
The report shows that public debt is ballooning, up from Sh435.7 billion two years ago, to Sh658.23 in the current financial year and upwards to an estimated Sh1 trillion in the forthcoming year.
To set those figures in perspective, the Treasury will now spend some Sh54 in Every S100 it raises in taxes just to service the public debt.
MOODY’S DOWNGRADE KENYA’S CREDIT RATING
Treasury Secretary Henry Rotich has been busily engaged in restructuring Kenya’s debt burden but his task will not have been eased by the news last week that the international credit ratings agency Moody’s has downgraded Kenya’s credit rating to B2, meaning that the agency now judges the country’s credit worthiness as ‘being speculative and a high credit risk’.
THE EUROBOND ISSUE
In recent days Henry Rotich and his Treasury team were in the United States in search of investors to buy into a Eurobond issue of between £1.5 billion (Sh150 billion) and $3 billion (Sh300 billion), not least because Sh75 billion in debt repayments on the last Eurobond raised in 2014 (the amount of that bond issue was Sh275 trillion) is due in June next year.
There was good news for the Treasury that came late in the week with the announcement that Kenya will now receive Sh200 billion from international lenders in the form of a Eurobond.
The Eurobond will help bail the government out of its financial fix for the time being but it’s not necessarily good news for Kenyans. The interest repayments on the bond over its 30 year term will be $3.2 billion, that’s Sh323 billion, repayments, of course, that will be paid for by the Kenyan taxpayers.