Economy

Kenya eyes more debt relief in economic revival strategy

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Treasury Cabinet Secretary Ukur Yatani. FILE PHOTO | NMG

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Summary

  • The Treasury in January secured deals to suspend debt service with the Paris Club of countries and other creditors, including China.
  • Treasury secretary Ukur Yatani had late March proposed that rich countries extend debt suspension for African countries by a further a year to June 2022.

Kenya is keen on applying for an extension of the debt repayment relief from rich countries to free up cash to support economic recovery and bolster dollar reserves, the Central Bank of Kenya Governor Patrick Njoroge said on Thursday.

The Treasury in January secured deals to suspend debt service with the Paris Club of countries and other creditors, including China, covering the six months through June 2021.

“On the question about Kenya interest in extension of debt relief, the answer, of course, is yes,”Dr Njroge said. “[This is important because] it will free up resource for other purposes, and in particular supporting the economic recovery programme.”

He said the amount of savings that Kenya was looking at will depend on “the duration of the extension —if it is six months, three months, a year” — after current relief expires next month.

Treasury secretary Ukur Yatani had late March proposed that rich countries extend debt suspension for African countries by a further a year to June 2022, citing slower recovery from Covid-19 knocks than initially projected.

“This action will yield additional external resources, addressing debt vulnerabilities and providing liquidity,” Mr Yatani said during a conference for African ministers for finance, planning and development.

The National Treasury projects in the latest budgetary report that it has saved as much as Sh78.17 billion after it signed debt repayment moratoriums with several rich countries for this financial year ending June.

Besides budgetary support, the savings have helped bolster Kenya’s foreign exchange reserves which stood at $7.546 billion as at May 20, helping ease pressure on the shilling against major international currencies.

Dr Njoroge said he expects the reserves to be boosted further next month by concessional loan inflows amounting to $1.16 billion from the World Bank Group and International Monetary Fund.

The World Bank is expected to disburse about $750 million under the Development Policy Operations (DPO), while the IMF is expected to complete the second review for release of $410 million under the 38-month, $2.34 billion programme for Kenya approved in April.

“We expect it will not only support the budget, but also will support us in term of external resources we need,”Dr Njoroge said.

“Bottom-line is that expect the current account deficit to close at about 5.2 percent of GDP in 2021 and also an increase of reserves from the flows that I mentioned.”