Kenyan government has an option to reorganise its debt portfolio in order to reduce its stress, and achieve its commitment of narrowing its fiscal deficit.
Central Bank’s Governor Patrick Njoroge said that the country’s debt stood at 5.7 per cent to the GDP in September 2018. One of the standard debt management options would be to “allow evolution of debt to be improved.”
“There is hope of refinancing debt,” he said during the Governor’s Press Conference on the Monetary Policy Committee’s decision to retain Central Bank Rates at 9 per cent.
This means borrowing cheaper loans against the expensive credit the country is currently servicing. The best option, said Governor Njoroge, will be to source for funds with lengthy payment tenors.
The country has recorded fiscal deficits in excess of 7 per cent of GDP four years in a row, pushing government debt close to 60 per cent of GDP.
Henry Rotich’s 2019 draft Budget Policy Statement reveals it intends to approach fiscal consolidation (revenue-based consolidations, according to Governor Njoroge) strategy in order to narrow the deficit, targeting 3.0 per cent by fiscal 2023.
Fiscal deficit stood at 7.2 per cent in June 2018, and is expected to narrow to 6.3 per cent in June 2019.
Over fiscal 2020-23, an increase in recourse to external commercial borrowing, which typically takes the form of Eurobonds, means higher than previously budgeted interest spending and therefore headline deficits
“If fiscal remains widely accommodated, debt dynamics will remain averse,” said Governor Njoroge during the MPC’s briefing.
Improved revenue collection will be key to achieving the authorities’ deficit reduction target. Government revenue declined to 17.6 per cent of GDP in fiscal 2018, down from 18.9 per cent in fiscal 2017 and 19.7 per cent in fiscal 2014.
In the draft BPS, the National Treasury projects external commercial financing at $2.0 billion in fiscal 2020, compared with its previous estimate of $1.1 billion.
Higher reliance on external commercial debt raises exchange rate and refinancing risks amid tightening global liquidity, which translates into a stronger US dollar and higher interest rates.