Kenya will save Sh17.1 billion after a club of rich countries agreed to the country’s request for debt relief.
The move will see the country free up cash that is to instead be redirected towards tackling the health and economic effects of Covid-19.
This is after the Paris Club, an informal group of official creditors, agreed to offer Kenya debt relief following the country’s application under the Debt Service Suspension Initiative (DSSI), which is run under the auspices of the G20, a group of 20 wealthy nations.
However, these savings pale in comparison to the Sh55.2 billion that Kenya would be left with should China agree to participate in the debt suspension initiative, which freezes loan repayments from January to the end of June.
Nonetheless, the Paris Club suspension offers cash-strapped Kenya some much-needed breathing space as its tax revenues continued to dwindle and the country dives deeper into the credit market to help fund its expansive budget.
Noting that Kenya was eligible to benefit from the G20’s DSSI, the Paris Club agreed to freeze Kenya’s debt repayment from January to the end of June.
“The representatives of the Paris Club creditors have accepted to provide to Kenya a time-bound suspension of debt service due from January 1 to June 30, 2021,” said the Paris Club in a statement.
“The government of Kenya is committed to devoting the resources freed by this initiative to increase spending to mitigate the health, economic and social impact of the Covid-19 crisis.”
The Paris Club said Kenya is also committed to seeking from all its other bilateral official creditors a debt service treatment that is in line with G20’s terms.
“This initiative will also contribute to help Kenya to improve debt transparency and debt management,” said the Paris Club.
Some of the club’s members that participated in the DSSI include France, Germany, Canada, Denmark, South Korea, Spain, Italy, Belgium, Japan and the United States.
Kenya will save the most amount of money from Italy, which it was supposed to repay Sh4.5 billion during the six-month period, followed by Japan at Sh4.4 billion.
The other member of the club that was supposed to get the third-highest payout from Kenya is France, which was to receive Sh3.9 billion from the country’s coffers. Germany was to get Sh1.82 billion and Belgium Sh1 billion.
However, it was not immediately clear whether the debt relief applies to only official bilateral loans or includes non-official ones.
If the suspension applies only to official bilateral loans, then Kenya could save Sh11 billion instead of upwards of Sh17.1 billion.
National Treasury Cabinet Secretary Ukur Yatani in a response to a text message from The Standard confirmed that Kenya had applied for G20’s debt suspension.
“We appreciate and welcome their timely response, further noting that the terms have been made easier without difficult conditions,” he said.
An analysis by the World Bank had shown that Kenya could have saved as much as Sh86 billion between July and December 2020 if it had applied for the suspension.
However, the country dithered, fearing a credit revision downwards from ratings companies.
The World Bank noted that the DSSI grants debt service suspension to the poorest countries to help them manage the impact of the pandemic, and has provided some respite for some countries.
“However, so far, participation in the DSSI has led to small potential savings for African countries ($5.2 billion – Sh561.6 billion), while fears of downgrading by rating agencies in the event of private creditor participation are engendering co-ordination problems,” said the World Bank in its Africa Pulse report.
China, however, does not seem keen on such an arrangement.
“China has played hardball in debt relief talks so far, insisting that loans from State-owned banks should be treated as commercial debt and not subject to the G20’s earlier debt relief initiative (the DSSI),” said William Jackson, the chief emerging economist at Capital Economics, a London-based economic research consultancy.
The Treasury also plans to save close to Sh73 billion by requesting a deferment of interest payments on government securities held by pension funds and insurance firms.