January 29, 2019 / 9:47 AM / 7 months ago

UPDATE 3-Kenya has room to refinance government debt, central banker says

(Adds comment on risks from global economy)

By Omar Mohammed

NAIROBI, Jan 29 (Reuters) - Kenya has room to refinance its debt by extending the tenure of some of its loans, the central bank governor said on Tuesday, but it faces growing risks from an unsteady global economy.

Slowdowns in Europe and China, uncertainty over Brexit, a U.S.-China trade war and the recent U.S. government shutdown have all contributed to fears of a crisis in the global economy, Patrick Njoroge told a news conference.

“Clearly, the global economy is without a rudder,” Njoroge said. “It’s just coasting and without direction. That is very dangerous.”

The Kenyan government’s debt stood at 56.5 percent of gross domestic product in September, Njoroge said, and “there is scope for the reorganization of the debt portfolio, including replacing more expensive debt with cheaper debt.”

However, debt was just 42 percent of GDP when President Uhuru Kenyatta came to power in 2013. His government has borrowed heavily to finance infrastructure projects.

In October, the International Monetary Fund increased Kenya’s risk of defaulting on its debt repayments to moderate from low, citing the government’s public investment drive and revenue shortfalls in recent years.

Policymakers held the central bank rate at 9.0 percent on Monday, citing vibrant economic activity at home and inflation that is within the target range.

Njoroge also said that Kenyan banks have shown resilience, helped by its efforts to deal with non-performing loans. The credit risk for banks was easing, he said, but he cautioned banks against reckless lending.

Bad debts among Kenyan banks rose to 12.4 percent of total credit last year, the highest level in more than a decade.

The economy was expected to expand by 6.3 percent this year, up from an estimated 6.1 percent in 2018, the governor said, driven by an expansion in agriculture and services.

The ministry of finance is discussing issuing a Eurobond to help fund the 2018/19 budget deficit, it said last week, with a banking source valuing it at $2.5 billion, to be issued in dollars or euros.

The narrowing of the fiscal deficit, which the government targeted at 6.3 percent of GDP for the current fiscal year, will afford the central bank flexibility in monetary policy, Njoroge said. The government is targeting a deficit of 5 percent of GDP for the 2019/20 fiscal year.

“We do hope that those plans will work out as they have been put forward, because that will also allow us from the monetary side some room for readjustment, rebalancing in terms of we can now be less tight on the monetary policy,” he said.

Reporting by Omar Mohammed Editing by Maggie Fick

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