Treasury plans Eurobond type loan

The National Treasury has hinted at fresh plans to return to the international market to source for more debt, including the option of another Eurobond, to plug deficits in the national budget.

National Treasury Cabinet Secretary Henry Rotich told the Sunday Nation the Treasury will hold an international road show with global investors to explore the possibility of new debt instruments for Kenya with a view to plugging deficits for the country’s fiscal programme.

“Whatever deficit we have we will use to finance it by borrowing. Such borrowing will be a mix of local and external borrowing ranging from direct bilateral loans, export credit agencies, new products like Sukuks and Samurai bonds, and all other products in the international market including also going back to the Eurobond. We are not ruling out that,” he said.

CHEAPER FINANCING OPTIONS

Mr Rotich said the appetite for Kenyan bonds was currently high in the global market offering Kenya cheaper financing options away from the local market.

He would be acting unperturbed by political noise surrounding management of the proceeds of the 2014 Eurobond, which Opposition leaders and critics say have been misappropriated.

The government has denied it and said all monies were properly applied and investigation agencies have not found evidence of broken law at this stage.

(READ: Treasury accuses Raila of plot to wreck economy)

Cord leader Raila Odinga has accused Treasury of misappropriating the funds. On Thursday last week, he named 10 individuals allegedly involved in the scam terming it the “worst scandal in the history of Kenya.” They have denied wrongdoing.

Some experts told the Sunday Nation that Kenya was sinking into more debt but added that here is a real need to expand its infrastructure.

Treasury CS defended Treasury’s new borrowing plans as necessary for the country’s planned development and growth.

He said Kenyans cannot have their cake and eat it too, emphasising that the massive infrastructure projects under way needed money.

“Kenya has no surplus budget like the oil rich economies and we have to shoulder the burden of building new airports and roads and the railway now if we are to grow in future,” he said.

DEBT LEVELS

However Ernst & Young tax partner Francis Kamau expressed concern on Kenya’s fast rising debt level, urging the Treasury to move with caution in saddling Kenyans with more debt.

“We are saying that loans are not necessarily bad just as in our personal lives when we want to expand we need them, but ours is just to put a caution that Treasury must not breach its set limit for sustainable debt levels,” said Mr Kamau.

“Treasury must clear the air on how the proceeds of the Eurobond money were spent. It must cite real projects on which money was spent and their stages of implementation to give people confidence in its management of public finances,” he added.

Economist Robert Show told the Sunday Nation Kenya’s debt levels were rising “faster than is comfortable”.

“Kenya’s debt level is rising faster than is comfortably sustainable. We have to come to grips with the fact we are spending more than we are earning.

The Government is spending more than it is earning hence the inability to balance its books,” said Mr Shaw.

“The problem with anybody who takes on that portfolio (Treasury) is that you inherit the past.

You have inherited whatever commitment for any debt such that even if you were trying to be very prudent or frugal, you still have to pay the bills.

The problem with this is that it is like a slippery slope; once you get going, your debt starts to increase very fast.”

INTERNATIONAL DEBT MARKETS

But Mr Rotich disputed the assertion that the country’s debt was unsustainable noting that Kenya’s debt sustainability analysis shows Kenya can shoulder additional debt without straining.

Nairobi-based analyst Aly Khan Satchu said the fact that Kenya has access to international debt markets showed the confidence the world has on Kenya’s debt repayment capability.

He, however, added that any new such debt should be channelled to productive sectors particularly roads.

Parliamentary Accounts Committee Chair Mr Nicholas Gumbo also said Treasury should explore all options but added a rider that all borrowed money should be put to good use.

The experts spoke as ODM chairman John Mbadi in a statement said after carefully studying the response by Mr Rotich on the fresh claims by Cord on the Eurobond funds, the Opposition was more convinced “more than ever that there is a cover up regarding this money and the CS is party to the scheme.”