•Kenya is however at high risk of debt distress.
•To address debt-related risks, the government has taken action to hold the fiscal deficit and debt ratios to 8.7 and 70.4 per cent of GDP, respectively, this fiscal year.
Kenya is likely to benefit from a debt service relief by the International Monetary Fund (IMF) extended to 24 countries.
It is listed among low-income countries in the IMF books, countries that qualify for the relief.
This is the fourth tranche of debt service relief from the Catastrophe Containment and Relief Trust (CCRT) for 24 member countries with eligible debt falling due in the period through January 10, 2022.
The executive board also approved the inclusion of the Kyrgyz Republic and Lesotho among the beneficiary countries, enabling these members to receive relief of their debt service.
The approval of the fourth tranche, totaling approximately $124 million(Sh13.7 billion ), follows three prior tranches approved on April 13, 2020, October 2, 2020, and April 1, 2021.
According to IMF, the debt service relief helps free up scarce financial resources for vital health, social, and economic support to mitigate the impact of the Covid-19 pandemic.
Subject to the availability of sufficient resources in the CCRT, debt service relief for all beneficiary countries could be provided for the remaining period from January 11 to April 13, 2022, amounting to approximately $973 million(Sh107.7 billion) for the entire two-year period.
In March 2020, managing director Kristalina Georgieva launched an urgent fundraising effort to raise $1.4 billion(Sh154 billion) in grants for the CCRT.
This would enable the CCRT to provide financial assistance for relief on debt service for up to a maximum of two years, while leaving the CCRT adequately funded for future needs.
So far, donors have pledged contributions totaling about SDR 609 million ($860 million), including from the European Union, the UK, Japan, Germany, France, the Netherlands, Spain, Switzerland, Norway, Singapore, Greece, China, Mexico, the Philippines, Sweden, Bulgaria, Luxembourg, and Malta.
On April 2 this year, the executive board of the IMF approved a 38-month arrangements under the Extended Credit Facility(ECF) and the Extended Fund Facility(EFF) for Kenya in an amount equivalent to SDR 1.655 billion (305 per cent of quota or about $2.34 billion).
This is about Sh259 billion, to support the next phase of the authorities’ Covid-19 response and address the urgent need to reduce debt vulnerabilities.
Approval of the ECF/EFF enabled immediate disbursement of about $307.5 million(Sh34 billion), usable for budget support.
It followed an emergency support to Kenya in May 2020 (100 per cent of quota, equivalent to $739 million (Sh82.9 billion) at the time of approval,
Kenya was hit hard at the onset by the Covid-19 pandemic, IMF notes.
With a forceful policy response, the economy has been picking up heading into 2021 after posting a slight contraction of 0.3 per cent in 2020.
Even with this recovery, challenges remain in the return to durable and inclusive growth, and past gains in poverty reduction have been reversed, experts at IMF said.
The Covid-19 shock also exacerbated the country’s pre-existing fiscal vulnerabilities.
Kenya’s debt currently at Sh7.7 trillion however remains sustainable, IMF says, but the country is at high risk of debt distress.
To address debt-related risks, the government has taken action to hold the fiscal deficit and debt ratios to 8.7 and 70.4 per cent of GDP, respectively, this fiscal year
"Fiscal and balance-of-payments financing needs remain sizable over the medium term," IMF said.
Support from the G-20 under the Debt Service Suspension Initiative (DSSI) and development partners will contribute to closing the financing gap in 2021 along with financing from capital markets, it has noted.