Kenya facing a serious liquidity crisis, treasury says

Wednesday November 08 2023

Kenya's Cabinet Secretary, National Treasury and Economic Planning Njuguna Ndung'u. PHOTO | DENNIS ONSONGO | NMG


Kenya's Treasury says the country is facing serious cash flow challenges due to the maturing debts that have delayed the disbursement of funds to various development projects.

Treasury Cabinet Secretary Njuguna Ndung’u told the Finance and National Planning Committee that the maturing short-term debts, the depreciating shilling and the high-interest rates have pushed the country to a difficult financial position.

“We are in a very tight financial position largely brought about by short-term debt repayment, high-interest rates and the depreciating shilling which has increased our expenditure by Ksh145 billion ($945.1 million),” Prof Ndung’u said.

Read: Debt servicing costs up by $1.44bn on weak shilling

“We are facing so many external headwinds as well as negative external shocks. We are facing a liquidity crisis as we manage short-term debt. But I want to assure the country that we are not facing an insolvency crisis.”

Prof Ndung’u appeared before the committee chaired by Molo MP Kuria Kimani to defend the National Treasury budget cuts as contained in Supplementary Estimates I.


He said the country is facing short-term liquidity constraints due to the maturing debt.

Prof Ndung’u said the Treasury is also facing a number of underlying pressures like the cost of living and high taxation.

“People have been telling us to reduce the taxes. However, the cost of living arises due to supply-side problems. Inflation came down to 6.9 percent and the same is being fueled by the high cost of fuel,” Prof Ndung’u said.

“The numbers are very scary as the Energy and Petroleum Cabinet Secretary Cabinet Secretary Davis Chirchir indicated that fuel prices could hit Ksh300 ($1.98) per litre in Kenya should the war between Israel and Hamas continue,” Prof Ndung’u said.

Read: African economies face heavy toll of Gaza crisis

“The adjustment for exchange rate and interest rate structure for the United States has been devastating to us.”

Prof Ndung’u said the exchange rate and interest rate have ballooned the public debt by between 4.3 percent to 5.2 percent increasing the debt by Ksh145 billion in the first quarter of the financial year.

Mr Chirchir on Monday told the ongoing National Dialogue Committee hearings that while rising fuel prices are a global issue, the government's interventions had mitigated a further rise in pump prices.

"We can't do much on international pricing of petroleum. I read an article that international (crude) prices could go to $150 (per barrel) because of the Israel - Hamas war, which would literally mean our products going to a high of Ksh300 per litre at the pump. We hope it doesn't get there," said the CS.

Prof Ndung’u told the Kuria-Kimani-led committee that the interest rate structure will continue to be high and this will make it difficult for Kenya to enter the international market for cheap loans.

He said Kenya is preparing to make a bullet payment of Ksh300 billion ($1.98 billion) Eurobond which is maturing in June next year.

“The elephant in the room is the Eurobond payment of $2 billion. The payment is coming in June and everyone is asking if Kenya will be able to pay,” said Prof Ndung’u.

“I was in Marrakesh in Morocco for the annual meeting of the International Monetary Fund (IMF) and the World Bank Ministers for Finance and I convinced them that we can’t default on public debt. I have to make sure that whatever it takes, we will pay the Eurobond.”

Prof Ndung’u said for the Treasury to remove the risk of the Eurobond default, the government will buy back some portion of the Eurobond.

Read: Kenya now makes U-turn on $2b Eurobond buyback plan

“Everybody believes that the government will go and buy dollars and pay the Eurobond. To reduce the jitters, we will buy back some portion of the Eurobond,” Prof Ndung’u said.

He said the IMF and the World Bank have indicated it will help the country repay its debt and reduce liquidity challenges.

Treasury Principal Secretary Chris Kiptoo said the country is walking a tightrope and has resorted to budget cuts to ensure the country lives within its means.

“We are in a very tight situation. We have seen a Ksh145 billion increase in the budget due to interest rate and the depreciating shilling,” he said.

“But we are likely to get between $4 billion to $5 billion from the IMF and WB and other donors by June next year.”