Kenya’s Public Debt Surpasses Ksh12 Trillion as Returns on T-Bills Fall Below 9%

In Summary

• Kenya’s public debt has surpassed Ksh12 trillion, with Ksh1.85 trillion set for repayment in the 2024/25 financial year.
• The 91-day Treasury bill rate dropped below 9%, marking a significant shift in borrowing costs.
• Kenya spent Ksh18.9 billion on loan commitment fees due to undisbursed debt.
• VAT collections fell by 4.3%, reflecting a decline in consumer spending amid tough economic conditions.
• The Treasury has reversed its plan to transfer government securities issuance to the Public Debt Management Office.
• The Ministry of Agriculture has increased miraa prices to Ksh1,300 per kilogram, aiming to improve returns for farmers.

The 91-day Treasury bill rate has fallen below 9% for the first time in over two years, dropping to 8.96% as the CBK adjusts borrowing costs following a recent rate cut. Investor appetite remains strong, with the latest auction attracting Ksh44.26 billion in offers, though the CBK only accepted Ksh25.14 billion, leaving out expensive bids. According to the Business Daily, the Central Bank also reduced the cash reserve ratio for banks, injecting over Ksh57 billion into the financial system to boost lending. However, upcoming fiscal pressures from an increased domestic borrowing target could limit further rate declines.

Kenya has spent Ksh18.9 billion over the past eight years on loan commitment fees—charges incurred for undisbursed but contracted loans—highlighting inefficiencies in loan utilization. A report by the Parliamentary Budget Office (PBO) reveals that as of June 2024, the country had Ksh1.38 trillion in undisbursed debt, leading to Ksh1.58 billion in commitment fees. The Auditor General has flagged these charges, urging better loan management to prevent waste, as delays in disbursement hinder economic benefits. According to the Business Daily, key issues include bureaucratic hurdles, unmet loan conditions, and poor coordination between the Treasury and project agencies.

Kenya's public debt has exceeded Ksh12 trillion, with Ksh1.85 trillion earmarked for repayment in the 2024/25 financial year. In a report by Nation, between September and December 2024, the government borrowed an average of Ksh572 million daily, totaling Ksh68.7 billion in four months. This includes loans from China (Ksh17.3 billion), Italy (Ksh20.3 billion), Germany (Ksh8.8 billion), and France (Ksh4.6 billion), with significant allocations for road projects in Turkana, Uasin Gishu, Kiambu, Murang’a, and Taita-Taveta. Some of these loans have repayment periods extending to 2045, raising concerns over Kenya’s growing debt burden.

Ksh304.1 billion—this is how much Kenya collected in VAT in the six months to December 2024, marking a 4.3% drop from the same period in 2023. This is the first decline since the pandemic, attributed to lower consumer spending amid tough economic conditions. Reduced household incomes due to higher deductions for social insurance, NSSF, and the Housing Levy have strained disposable income. According to the Business Daily, the VAT shortfall was Ksh36.5 billion, contributing to an overall revenue miss of Ksh93.2 billion. With all major tax categories falling below targets, the government faces growing fiscal pressure.

The Treasury has dropped its plan to transfer the issuance of government securities from the CBK to the Public Debt Management Office (PDMO) after CBK successfully lobbied to retain the role, which earns it up to Ksh3 billion in annual commissions. The proposal aimed to lower borrowing costs and give the Treasury more control over debt management, but concerns over monetary policy conflicts led to its reversal. Additionally, the Treasury has backed down from scrapping the 364-day Treasury bill, opting instead for liability management tools to handle refinancing risks as reported in the Business Daily.

According to Capital Business, Kenya's Ministry of Agriculture has doubled the price of miraa, with Grade 1 now priced at Ksh1,300 per kilogram, Grade 2 at Ksh700 per kilogram, and Alele at Ksh1,000 per kilogram. This new price structure, effective immediately, follows a review by the Pricing Formula Committee based on production data, supply and demand, and other factors. Agriculture Cabinet Secretary Mutahi Kagwe emphasized the government's efforts to address market access challenges and expand export opportunities. This move aligns with the formation of a Pricing Committee under the Crops Act 2013, aimed at stabilizing miraa and muguka prices, ensuring better returns for farmers. Additionally, the government has allocated Ksh500 million for miraa value addition in the 2024/25 financial year.

In a story by the Business Daily, despite being at the center of a suspected Ksh13.3 billion fraud scandal at the Kenya Union of Savings & Credit Cooperatives (Kuscco), former Managing Director George Otieno Ototo is suing the institution for Ksh120 million in compensation. Court documents reveal that Ototo, who spent 21 years at Kuscco, claims he served "diligently" and "dutifully" and is entitled to benefits, including gratuity, unpaid salaries, and allowances. This comes even as a forensic audit links him and other former officials to massive financial improprieties that left Kuscco in financial turmoil.  Court papers reveal that Ototo was earning a monthly salary of Ksh3 million, an annual medical benefit of Ksh250,000, and a monthly security allowance of Ksh100,000. He also received a monthly entertainment allowance of Ksh50,000 and a transport allowance of Ksh50,000. Ototo claims he voluntarily applied for early retirement at 51 years on January 11, 2024, which Kuscco acknowledged the following day, directing him to proceed on annual leave for 60 days pending confirmation of his request. Kuscco, now preparing for a legal battle, has dismissed his claim and is considering a counter-suit to recover losses.

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