Broke Kenya gets Sh32b debt relief
Kenya got much-needed reprieve from its creditors when the Paris Club said yesterday that it had accepted a request from Kenya for a debt-servicing suspension from January to the end of June.
Treasury can now redirect the money it was supposed to pay the debt to other more pressing issues such as Covid-19 fight and issues around reopening of schools.
Treasury CS Ukur Yatani confirmed Kenya’s successful application for the Debt Service Suspension Initiative (DSSI) from the Paris Club.
“The Paris Club has accepted Kenya’s application for debt service suspension, which now means that Sh32.9 billion of Kenya’s foreign debt owed to 10 bilateral partners under the Paris Club, falling due from January 1 to June 30, 2021.”
The Paris Club creditors consist of most of the western European and Scandinavian nations, the United States of America, the United Kingdom and Japan.
Yatani said Kenya has already signed a Memorandum of Understanding (MoU) with the Paris Club, to be followed by individual MoUs which each country under the Club, covering the terms of payment post June 30, 2021.
“In effect, the initiative, apart from suspending the payments, will give us a total of five years to repay the loans, with a grace period of one year.
This is not only timely, but a sign of confidence in the country and will give us the fiscal space to make the much-needed spending on the Covid-19 economic recovery strategy especially in the social, health and economic sectors,” said Yatani.
Kenya has also applied for debt service suspension under the G-20 DSSI framework, for amounts estimated at Sh40.6 billion due from January 1, 2021 to June 30, 2021, from non-Paris Club bilateral creditors.
The formal approval is expected in the coming weeks. “The country will not seek debt service suspension from both its multilateral and commercial creditors, to safeguard its sovereign rating and its future access to international financial markets,” he said.
University of Nairobi lecturer of development economics Samuel Nyandemo said the relief period though short is better than nothing. “ Kenya can use that duration to reorganise its finances and cut its appetite for debt,” said Nyademo.
Kenya had earlier rejected recommendations by the World Bank to have it get a debt reprieve for six months. The debt suspension was Sh75 billion.
“Kenya is committed to devote the resources freed by this initiative to increase spending in order to mitigate the health, economic and social impact of the Covid-19 crisis,” the Paris Club said in a statement on its website.
Speaks louder
The Paris Club noted Kenya is also committed to seeking from other bilateral official creditors debt-servicing treatment in line with the agreed terms of the Debt Service Suspension Initiative (DSSI) of the G20 group of rich nations and big emerging powers, the creditors added in their statement.
Kenya changed its mind about the G20 coronavirus debt relief initiative after declining to join earlier in 2020.
Yatani said in November that it was planning to defer around $690 million in debt payments.
Analysts, however, say a six-month debt suspension is too short. The head of research at the Financial Sector Deepening Kenya Jared Soro said it is “a case of one eighth of a loaf being better than none. Posturing usually has an obvious end”.
Osoro, however, said it will be a relief from a liquidity management standpoint. “Six months is still a short period.
With Chinese debt not being part of this, the value of the debt doesn’t change much,” he said. “It would need a combination of 2-3 years of repayment relief, restructuring with interest suspension and reduction in cost of debt - making it kind of long term debt for over 25 years, giving long rope for recovery,” said the Chef Executive of IndusInd International Holdings Limited Mauritius Moses Harding.
The Treasury had said that taking a debt suspension could breach agreements with bondholders making it difficult for Kenya to borrow on the international markets.
Kenya’s debt situation has gotten worse since then with the Treasury seeking Parliament’s approval to lift the debt ceiling from the current Sh9 trillion to Sh12 trillion.
The public debt has increased rapidly from Sh5 trillion in early 2020 to Sh7.1 trillion as Covid-19 accelerated borrowing.
The World Bank is said to have engaged Treasury in discussions asking them to take a debt relief offer as a precondition for getting new loans.
Credit rating agency Moody’s in November said that Kenya will struggle to borrow internationally due to the Coronavirus loans.
Joining the arrangement was important, Yatani said then, as it will help open doors for further funding from the International Monetary Fund and World Bank.
In December, the IMF said Kenyan authorities were continuing talks with the Fund on the remaining provisions of an IMF financing program for the East African country that could be presented to the IMF board in early 2021.
The Treasury last year said that media reports saying that the government has requested for debt suspension are false.
