- The suspension period, originally set to end on December 31, 2020, was extended to June 2021.
- Last week, Kenya hinted at going for the fourth Eurobond to repay $8.5 billion debt due in June.
Image: EZEKIEL AMING'A
Most poor countries could default on loan repayments by June 30 when the G20 debt relief window expires, economists have warned.
Last year, the 20 richest countries offered a temporary suspension of debt-service payments owed to their official bilateral creditors to allow them to concentrate resources on fighting Covid-19 economic shocks.
The G20 brings together Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy.
Others are Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States, and the European Union.
The loan moratorium, originally for December 31, 2020, was extended to June 2021.
Speaking at the release of the 2021 edition of the African Economic Outlook by the African Development Bank, past Nobel Prize winner in Economics, Joseph Stiglitz asked the rich countries to reconsider the deadline.
“What needs to be done with debt is comprehensive and quick restructuring. We don’t want to fall into the trap of doing too little, too late,” Stiglitz said.
His sentiments are echoed by European Council President Charles Michel who called on G20 leaders to create “a new model of sustainable finance” to avoid sovereign defaults in the wake of the COVID-19 crisis.
“In our opinion, it is not enough,” Michel said in reference to G20’s Debt Service Suspension Initiative.
He added that there is a need for a new model of sustainable finance, particularly in Africa, to break the cycle of over indebtedness.
Their remarks come at a time beneficiaries like Kenya are under pressure to mobilise resources to repay the due debt come June 30.
Early this year, Kenya received a debt payment relief from Paris Club creditors and G20 members that will see the country delay due loans worth $802 million to the end of June.
Last week, Kenya hinted at going back to the international debt market for the fourth Eurobond in less than seven years to repay $8.5 billion debt due in June.
Haron Sirma, the Director-in-charge of Debt Management at the National Treasury said the exchequer has already commenced plans to get the Eurobond but did not give more details.
Although the debt suspension plan was to offer indebted countries some breathing space, the June deadline comes with tougher conditions.
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. They also risk eroding their creditworthiness, hence unable to borrow in the future.
Initially, Kenya had concerns about the impact that debt relief might have on its credit rating which has since been downgraded by at least three international credit rating agencies.
National Treasury Cabinet Secretary Ukur Yatani was concerned that terms of the deal limiting countries’ access to international capital markets could hinder Kenya’s ability to finance its deficit later in the year.
“We fear we might unnecessarily create a crisis,” Yatani told Reuters in May last year.
Last July, Standard and Poor's (S&P) lowered the country’s sovereign credit outlook to ‘negative’ from ‘stable’, citing unstable economic growth due to coronavirus pandemic.
In May, IMF also raised Kenya’s risk of debt distress to high from moderate in a statement because of the costly impact of the worsening Covid-19 crisis.
Earlier on, Moody's had changed the outlook on Kenya's ratings to negative from stable affirming the country’s B2 issuer and senior unsecured ratings.
Kenya was, however, forced to rethink its stand on the G20 offer after its revenue collection mechanism was hit hard by Covid-19 economic shocks, with the Kenya Revenue Authority failing to meet its 2020/21 collection target.
The revenue agency missed its target by Sh350 billion, the highest in five years that saw the Government net Sh1.43 trillion in taxes in the last financial year.
However, the tax collection shortfall reduces to Sh12 billion when compared to the revised target of Sh1.46 trillion.
AfDB president Akinwumi Adesina now wants local solutions to the continent's debt crisis.
Adesina said an African financial stabilisation mechanism should be established where African countries can pool their funds.
''This would allow countries to have “endogenous” fiscal and monetary policies to ensure that they deal with “the cause of the illness…and not always the symptoms,'' Adesina said.