BREATHING SPACE

Kenya to delay at least Sh80bn due debt

The debt suspension, however, comes with tough rules that could easily see Kenya kicked out of the international financial system in case of default.

In Summary
  • The club has provided Kenya with a time-bound suspension of debt service due from Jan 1 to June 30.
  • For instance, failure to pay 15 days after the due date of the debt relief programme, the benefiting country ceases to be a member of the IMF.
Treasury CS Ukur Yatani.
Treasury CS Ukur Yatani.
Image: FILE

Kenya on Monday received a debt payment relief from Paris Club creditors that will see the country delay due loans worth $802 million to the end of June.

In a statement, the creditors said they accepted Kenya's request but gave a time-bound suspension that runs from from January 1 to June 30.

The lenders said that in the application of the term sheet of the Debt service suspension Initiative (DSSI) and its addendum also endorsed by the G20, it recognised that Kenya is eligible to benefit from the initiative.

“The Government of the Republic of Kenya is committed to devoting the resources freed by this initiative to increase spending in order to mitigate the health, economic and social impact of the COVID19-crisis,’’ the statement read in part.

It added that the country committed to seeking from all its other bilateral official creditors a debt service treatment that is in line with the agreed term sheet and its addendum.

Treasury CS Ukur Yatani confirmed the suspension in a statement on Monday, saying, "“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 asign of confidence in the country and will give us the fiscal space to make the muchneeded spending on the COVID-19 economic recovery strategy especially in the social,health and economic sectors."

The debt suspension plan is expected to help Kenya to improve debt transparency and debt management.

“Paris Club creditors will continue to closely coordinate with non-Paris Club G20 creditors and other stakeholders in the ongoing implementation of the DSSI, so as to provide maximum support to beneficiary countries,’’ the statement read.

The Paris Club an informal group of official creditors formed in 1956 seeks coordinated and sustainable solutions to the payment difficulties experienced by borrower countries.

Since its formation, the club that meets 10 times per year has signed 433 agreements with 90 different countries covering over $583 billion.

This will be the fourth time Kenya will be approaching the club to seek debt relief and rescheduling in the past two decades.

In January 1994, it received $535 million, at least $301 million in 2000 over $301 million and in January 2004 over $353 million.

The debt suspension, however, comes with tough rules that could easily see Kenya kicked out of the international financial system in case of default. 

For instance, failure to pay 15 days after the due date of the debt relief programme, the benefiting country ceases to be a member of the IMF.

While the initiative offers some respite for Kenya,the bulk of its due debt within the period of relief is owed to China, which has declined to join the Paris based club. 

Kenya is expected to start repaying the Sh160 billion Chinese loan used to build the Nairobi-Naivasha standard gauge railway (SGR) line on Jan 21. 

According to the National Treasury, the $1.48 billion debt from the Exim Bank of China that Kenya tapped in December 2015 has fallen due after a five-year grace period and that Kenya will be expected to make 30 semi-annual payments for the next 14 years.

Kenya is among 23 countries at risk of debt distress following heavy lending from China under BRI as stated by the World Bank in a study by the Centre for Global Development (CGD) released in March 2018.

The debt suspension plan is coming six months after the country turned down the G20 initiative saying the terms of the deal were too restrictive and it also fretted the impact that debt relief might have on Kenya’s credit rating.

The country’s exchequer, for instance, was concerned that terms of the deal limiting countries’ access to international capital markets during the standstill could hinder Kenya’s ability to finance its deficit later in the year.

In April last year, officials from the G20 countries announced plans to suspend both the principal repayments and interest payments on loans for the world’s poorest countries, lasting up to the end of the year.

The move was aimed at releasing more than $20 billion for the underprivileged countries to use in fighting the global coronavirus pandemic.