Economy

Kenya gets extension of public debt service relief to December

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National Treasury Cabinet Secretary Ukur Yatani. FILE PHOTO | NMG

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Summary

  • Kenya was initially reluctant to apply for debt suspension offers by the rich countries but had a change of heart in January after domestic revenue collection missed target by 12.4 percent, or Sh115.9 billion, in the half-year period to December 2020.

Kenya will save an additional Sh39 billion ($361 million) after rich countries extended debt repayment moratorium by another six months to December, freeing up cash to boost economic recovery from the Covid-19 pandemic.

The International Monetary Fund (IMF) has disclosed the extension in the latest report on Kenya, adding that the Treasury has factored the forecast savings in the Sh3.6 trillion budget for the year starting July.

In January, Kenya secured deals to suspend debt service with the Paris Club countries and other creditors, including China, covering the six months to the end of June this year.

In April, Treasury Cabinet Secretary Ukur Yatani asked richer nations to extend the relief for another year to ease budget deficits.

“The draft budget … reflects additional foreign financing due to the extension of DSSI [Debt Service Suspension Initiative] relief through end-December 2021, as agreed by the G20 in April ($361 million or 0.3 percent of GDP),” the IMF wrote in a detailed report following the release of the second tranche of Sh44.22 billion ($407million).

The cash is part of a 38-month, $2.4 billion (Sh258.84 billion) IMF financing programme for Kenya.

The extension will see Kenya’s savings from debt relief request top Sh77 billion after estimated Sh38 billion savings were booked between January and June 2020.

Haron Sirima, the director-general for public debt management at the Treasury, said Kenya had applied for the fresh relief, with proceeds to be channelled into the Covid-19 vaccination programme and support for the vulnerable in the society.

“G20-DSSI package has been extended for another six months to end December 2021 to support low-income countries navigate through the adverse effects of Covid containment measures. Kenya has applied for this supply to enable finance health and social expenditures in the FY 2021/2,” Dr Sirima said.

Kenya is among 46 countries that by April applied to defer an estimated $12.5 billion (Sh1.35 trillion) in bilateral debt repayments owed to G-20 countries under the DSSI programme that ends this month. Seventy-three countries are eligible.

The Treasury had initially expected to free up Sh71 billion after it successfully applied for debt relief under the programme. This was, however, cut back by 42 percent to Sh38 billion after eligible loans were confirmed, the IMF research analysts said.

“While financing under the DSSI initiative in H1-2021 is less than originally envisioned, the authorities have requested extension through end-2021, providing significant additional near-term financial support,” the IMF analysts wrote in the report.

“The authorities are following up on DSSI creditor participation under the initiative and engaging the donor community to secure grants or additional concessional lending to cover potential Covid-19 vaccination costs.”

Kenya was initially reluctant to apply for debt suspension offers by the rich countries but had a change of heart in January after domestic revenue collection missed target by 12.4 percent, or Sh115.9 billion, in the half-year period to December 2020.

The impact of the Covid-19 pandemic has battered Kenya’s tax revenue collection at a time when more of its debts are falling due and as it is still grappling with gaping budget deficits.

The Jubilee administration has ramped up spending since 2013 to build new roads, a modern railway, bridges and electricity plants, driving up borrowing to plug the budget deficit.