The assets of eight state bodies may be lost if the government defaults in repayment of Sh147.7 billion in external debts as of December 2018.
This is according to a Parliamentary Budget Office (PBO) document presented on Thursday to the Budget and Appropriations Committee of the National Assembly.
The agencies whose assets are at risk include the financially troubled Kenya Airways (Sh76.39 billion), Kenya Ports Authority (Sh33.7 billion), Kenya Power (Sh14.01 billion) and Kenya Electricity Generating Company (Sh10.86 billion).
The others are Kenya Broadcasting Corporation (Sh6.95 billion), Kenya Railways (IDA concessionaire, Sh4.59 billion), Tana and Athi Rivers Development Authority (Sh542 million) and East African Portland Cement Company (Sh674 million).
GUARANTORS
The agencies were used by the government as guarantors in the acquisition of external debts dominated by China and World Bank’s International Development Association (IDA).
The two make make up 64 per cent and 71 per cent of multilateral and bilateral debts respectively.
The Sh147.7 billion is an increase from the Sh133.79 billion in guarantees as at December 2017.
The debts guaranteed by KBC, Tarda and and the cement company remain non-performing even as the government continues to face increased debt refinancing pressure.
The PBO document explains that, “If an institution fails to make payments for a guaranteed loan, it [becomes necessary for] the government to step in and shoulder the extra burden by use of already limited resources.”
In the event the government fails to clear the debts as required, the assets of the agency in question will be repossessed by the lending entity in line with the agreement entered.
DEBT BURDEN
The National Treasury, in its annual public debt management report tabled in the National Assembly, projected that Kenya’s public debt will hit Sh5.6 trillion by June and about Sh7 trillion by 2022 when President Uhuru Kenyatta completes his second and final five year-term.
In the current financial year, at least Sh1.8 trillion is required to refinance a debt of about Sh5.4 trillion as of last year, almost 50 percent of the country’s total projected revenues.
“This will require cautious domestic revenue management in the face of other rising expenditure priorities,” the PBO report says.
It adds that the rise is mainly associated with the repayment of syndicated loans, international bonds and a 43 per cent domestic debt.
BORROWING APPETITE
Meanwhile, the Budget and Appropriations Committee is considering a proposed bill by Emgwen MP Alex Kosgey to cap public debt at Sh6 trillion.
However, the PBO is of the view that it remains the function of the Gross Domestic Product (GDP) and the public debt management office to determine the optimal debt portfolio.
Currently, MPs have no role in controlling the government’s borrowing but Mr Kosgey wants the Treasury Cabinet Secretary to always seek the approval of the National Assembly before this happens.
SGR LOAN
The report comes as the government seeks Sh368 billion from China to finance its third phase of the standard gauge railway (SGR) project- -from Naivasha to Kisumu.
But even as this unfolds, Alego Usonga MP Samuel Atandi has proposed a legislative proposal to provide stringent measures, that touch on the Public Finance Management Act, to control the government’s appetite for borrowing.
Currently, Parliament is only tasked with putting a ceiling on how much the government should borrow compared to its GDP.
The Jubilee administration has ramped up spending since 2013 to build much-needed roads, a railway, bridges and electricity plants, driving up borrowing to plug the budget deficit.
The increased debt has seen Kenya commit more than half of its taxes to loan repayment, leaving little cash for the roads, affordable houses and the ailing health sector.