In a decade the Jubilee Government has borrowed over Sh766.8 billion in Eurobonds alone and made a single repayment of Sh75 billion.
And in the next five years, the coming government will have to make two payments of Sh324 billion of inherited debt in 2024 and 2027.
If the coming government serves two terms, it will settle another Sh226 billion in 2028 and 2032.
What’s more, it will inherit broke parastatals and declining taxes that threaten to milk State coffers dry.
In the latest financial sector stability report published last week, the Central Bank of Kenya raised the alarm that too many parastatals are extending begging bowls towards the Treasury just to stay afloat.
Given the debt levels taking up more than 50 percent of revenues, recurrent taxes such as wage bill and sticky expenditure such as pension, Dr Patrick Njoroge was foreseeing a crisis if the government fails to shore up these companies.
State-owned enterprises had borrowed over Sh100 billion from the banking sector by 2019 from a total of 35 banks extended loans to SOEs/parastatals in December 2019, thus comprising some of the large single borrower exposures.
Stress test
The banking regulator carried out a stress test in April on the impact of defaults by big borrowers even under the most basic scenario with the current Covid-19 conditions, including existing restrictions and containment measures up to March 2021 and thereafter lifted as the spread recedes.
The CBK said if three big borrowers defaulted for each bank, 18 lenders would land in trouble and require a Sh45 billion bailout.
"The decline in profitability and cashflow problems exacerbates indebtedness and increased reliance (by State owned enterprises) on fiscal support, thus increasing financial sector vulnerabilities through their participation in the financial sector and government ownership. This raises both fiscal risk and financial stability concerns," Dr Njoroge said.Already, the Treasury has rejected proposals from the national carrier Kenya Airways for a fresh bailout of Sh55 billion after it gave KQ Sh28 billion in last year’s budget.Treasury CS Ukur Yatani has admitted that the State is strained in supporting government-owned corporations and that besides Kenya Airways the next government will need Sh70 billion over five years to bail out 18 State-owned corporations. "The State corporations are facing financial shortfalls or liquidity gaps, 18 corporations have an estimated cumulative financial shortfall of about Sh70 billion annually over the next five year period," said CS Yatani in a July 2021 press statement […]
