Covid: Kenya’s Sh43bn debt repayment holiday


The National Treasury building in Nairobi in this picture taken on March 15, 2023. PHOTO | DENNIS ONSONGO | NMG

Ten external creditors handed Kenya relief by suspending the repayment of Sh42.65 billion loans across 2021, new data from the Treasury reveals.

Nine bilateral creditors and a single export creditor granted Kenya relief via the debt service suspension initiative (DSSI) running between June 2020 and December 2021.

This was low participation at 37.5 percent in spite of Kenya making a request to all its 24 bilateral creditors.

The DSSI was established by G20 countries in May 2020 with collaboration from the World Bank and the International Monetary Fund (IMF) and was aimed at helping countries to concentrate their resources on fighting Covid-19 while safeguarding lives and livelihoods.

Of the 10, the Export-Import Bank of China (Exim) handed Kenya the largest relief of Sh28.1 billion between January and June 2021.

The Exim Bank of China nevertheless failed to participate in the second half of the initiative which ran from July to December 2021, according to the data released last week.

French development agency Agence Francaise De Development meanwhile suspended payments totalling Sh7.6 billion through the 12 months of 2021 with the relief being granted in two equal portions of Sh3.8 billion.

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Others were Belgium (Sh65.5 million), Denmark (Sh101.5 million), France (Sh268.8 million), Italy (Sh8.3 million), Japan (Sh1.9 billion), Germany (Sh2.7 billion) and Spain (Sh1.8 billion).

Denmark and Japan participated in the initiative’s second half while all other bilateral creditors apart from China were in play during both phases.

“Our participation in the G20 debt service suspension initiative, including relief provided for the second half of 2021, has helped reduce financing pressures though yielding less than originally expected,” Treasury told the Business Daily.

The Export-Import Bank of Korea was the only outlier in the initiative having been the only export creditor to grant Kenya relief in both tranches of the initiative, yielding savings of Sh171.3 million to the country.

Apart from the 10, Kenya’s other bilateral creditors are the Abu Dhabi Fund for Arab Economic Cooperation, Deutsche Bank Espanola, Exim Bank India, Poland, Austria, Finland, Netherlands, Saudi Arabia and USA.

KBC Bank, Korea Economic Development Co-operation Fund, Kuwait Fund for Arab Economic Development, Saudi Development Fund and Unicredit SPA also make the list.

According to disclosures by the World Bank, 48 out of 73 eligible countries participated in the initiative before it expired in December 2021.

Kenya was nevertheless late to the party having opted into the programme that allowed countries to temporarily pause their debt repayments in January 2021.

This was amid concerns by participating countries on what their involvement could mean to their creditworthiness, the timing of the signing of bilateral legal agreements in relation to defaults and cross-default clauses that cover commercial loans.

In July last year, Kenyan authorities applauded the initiative in disclosures made to the IMF even as the programme underperformed from limited creditor participation.

In further disclosures, the exchequer said Kenya had obtained debt suspension of $423.5 million (Sh46.5 billion at the then exchange rate) between January and June 2021.

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The second phase of the initiative meanwhile yielded $80.3 million (Sh8.8 billion) in savings.

Kenya stood to save up to $379 million (Sh52.4 billion at current exchange rates) if all bilateral creditors participated in the initiative.

According to the exchequer, Kenya’s participation in the DSSI helped to unlock liquidity challenges during the pandemic while the savings made have been scheduled as repayments in subsequent financial years.

DSSI entails postponement of both principal and interest payments to the future to create temporary fiscal space and ease pressure on foreign exchange demand.

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