Kenya is among African countries that have been advised to borrow closer home by the African Development Bank (AFDB).
This follows a recent report by the development agency that shows that the number of countries in the continent that have sold Eurobond has doubled in a decade.
According to the report, African governments sold $12b of Eurobond last year, compared with $25.6b in a period 2006-2014. At least 20 countries have sold at least one Eurobond in the past 18 months.
While foreign borrowing is vital for financing economic development in the region, AFDB noted that once local currencies are weak, debt service soar in local currency, hence high import cost and low export incomes for local businesses.
According to the bank’s President Akinwumi Adesina, Africa has a wealth of unexploited financial capital locally that can replace the expensive foreign capital that is negating the continent’s trade balance.
He for instance pointed the out $334b in pension funds and sovereign wealth funds worth $164 billion, saying that such capital can be used for Africa’s development.
“We’re helping countries issue bonds in domestic currencies to raise money and also with the pension funds to create the regulatory environment that allows them to have asset classes in which they can invest.”
The continental development bank regretted that most countries in Africa are now facing budget deficits, stagnating or contracting growth and in some cases currency depreciation that increases the cost of servicing and paying off existing dollar-denominated debt.
This revelation comes at the time Kenya is spending up to a fifth of its financial budget to repay foreign loans.
According to the Central Bank of Kenya, external Debt in the country increased to Sh1.67 trillion in March from Sh1.65 in February of 2016.
External debt in Kenya averaged Sh619 billion from 2000 until 2016, reaching an all time high of Sh1.67 trillion in March of 2016 and a record low of Sh361 billion in May of 2003.
Even so, the Treasury Cabinet Secretary Henry Rotich recently allayed fears that the country has crossed a debt red line, saying that it is 24 percent clear below the CPIA index standard.
He explained that the current Sh3 trillion debt levels, which is playing above the 50 per cent ratio to the Gross Domestic Product (GDP) is below 74 percent ratio to GDP mark by the Country Policy and Institutional Assessment (CPIA) index standards.
China is the country’s single largest lender, holding more than half of the total external debt.