Kenya is facing US dollar shortage forcing state firms to delay paying foreign debts
NAIROBI, Kenya - The shortage of US dollars in Kenya is making State-owned enterprises unable to pay their foreign debts on time.
Most of these state-owned are facing a non-guaranteed foreign currency debt worth KSH 75 billion which is exposing them to higher financing costs due to the sharp depreciation of the shilling against the US dollar.
The National Treasury documents reveal that the dollar loans account for three-quarters of the State-owned enterprises’ total non-guaranteed debt of KSH 99 billion.
Treasury’s Annual Debt Management report for the fiscal year ended June 2022 also states that the servicing costs for dollar loans have gone up for most state enterprises due to the weakening of the shilling by 6.8 percent to the dollar this year, which has raised the cost of buying the US currency locally to pay external lenders.
The Treasury has in the past two fiscal years been reporting in more detail the loans contracted by the State-owned enterprises, some of which are guaranteed by the Exchequer while others are non-guaranteed, meaning their liability falls solely on the contracting institution.
The fact is that most of these state entities are 100 percent or partly owned by the government means that a default of a non-guaranteed loan would still be borne by taxpayers, who would ultimately be called upon to bail them out.
Currently, the government of Kenya has 260 State corporations, which finance their operations through internally generated revenues, borrowings, and government transfers from the Exchequer.
According to Treasury in the debt report“As at end June 2022, out of the 26 entities that submitted the status of outstanding loans, 19 SoEs [State-owned enterprises] had non-guaranteed debt amounting to KSH 99.3 billion (equivalent to 0.8 percent of GDP) the loans are performing and none was reported to be in arrears as at end June 2022.
As a proportion of total non-guaranteed debt stock, a majority existed in the energy sector with Kenya Power, Kenya Pipeline Company (KPC), KenGen, National Oil Corporation of Kenya (Nock), Kenya Petroleum Refineries Ltd and Geothermal Development Company (GDC) holding 76.8 percent.”
The national power utility distributor Kenya Power accounts for the largest share of the non-guaranteed loans portfolio at a total of KSH 41billion, out of which KSH 31 billion is denominated in foreign currency.
KPC is second with a syndicated dollar loan of KSH 15 billion, followed by the Kenya Airports Authority, which has three dollar facilities worth a total of KSH11 billion. KenGen owed KSH 9 billion to dollar lenders,
The reporting of outstanding debt held by State-owned enterprises has been a major problem for the government in recent years, with the likes of the World Bank pointing out that failure to do so has the potential of distorting the true picture of the country’s public debt position.
Most of these State parastatals are highly indebted, compounded by persistent losses and cash flow challenges.
A recent World Bank study put total liabilities, including debt, tax, and social security arrears, owed by the State firms at Sh2.4 trillion in 2020, warning that this poses a great risk to the government, which is ultimately liable for this debt.