Kenya is eyeing debt service waivers by more lenders after the Paris Club of international creditors handed it a Sh32.9 billion loan repayment break to help ease the financial distresses linked to the Covid-19 pandemic.
The Paris Club — which includes Belgium, Canada, Denmark, France Germany, Italy, Japan, Republic of Korea, Spain and the US — said Monday it had accepted a request from Kenya for debt service suspension from January to the end of June.
“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.
The country has also applied for relief under the G-20 Debt Service Suspension Initiative (DSSI) framework estimated at Sh40.6 billion due from January 1 to June 30 from non-Paris Club creditors.
“The Government of the republic of Kenya is also committed to seek from all its other bilateral official creditors a debt service treatment that is in line with the agreed term sheet and its addendum,” the G20 countries said.
Kenya is expected to pay its biggest bilateral lender China Sh109.4 billion this year, including maturities of the loans for the second phase of the standard gauge railway to Naivasha.
Last year, China announced it would pause payments for 77 developing countries to compliment the G20 offer but which is proving more attractive for countries heavily indebted to Beijing.
Treasury Cabinet Secretary Ukur Yatani said the government was already in talks with China and expect a similar deal to be finalised in a matter of weeks.
“China has also generally agreed with this but we shall firm up in the coming weeks,” the Mr Yatani said.
Kenya had initially resisted the G20 debt repayment suspension fearing it would limit access to Eurobonds and lower the country’s credit ratings.
Moody’s already put Kenya on B2 a negative outlook citing huge external debt, lower revenues and currency risks.
Mr Yatani made a U-turn on his stance on the G20 debt relief, saying pressure from the World Bank and the International Monetary Fund (IMF) had forced the Treasury to ask for the debt relief.
The two Bretton Woods institution have pledged to give Kenya low-cost concessional loans on condition that it agrees to the G20 debt repayment break.
This now opens the way for Kenya to get an approval of a $2.3 billion (Sh250.4 billion) loan facility for budget support from the IMF executive board set to meet in February.
The country plans to borrow an additional $1.5 billion (Sh150 billion) from the World Bank in 2021.
Kenya is struggling with elevated debt payments which have spiralled to Sh7.1 trillion or 69.2 percent of the GDP at a time when revenues have fallen as a result of the coronavirus pandemic
Tax collections by the Kenya Revenue Authority (KRA) fell 15.03 percent or Sh33.27 billion in the first two months of this fiscal year to Sh188.08 billion on prolonged knock-on effects of the Covid-19 containment measures on economic activity.
This means Kenya will need more debt to plug the budget hole or turn to lenders to restructure debt or offer debt forgiveness to reduce expenses for repaying loans.
The country’s deteriorating cash-flow situation that is marked by falling revenues and worsening debt service obligations has forced it to return to these loans which have conditions attached to them.
Kenya has committed to reform its State-owned companies that will it raise taxes, cut subsidies and put some people out of jobs.
Kenya had kept away from direct budget funding from institutions like the IMF and the World Bank during former President Mwai Kibaki’s administration, preferring project support.
Kenya has joined Tanzania, Uganda and Burundi who have taken the Paris Club freeze.
Rwanda whose debt distress is rated moderate has not as well as South Sudan and Somalia both of who are already in distress.