Kenya is set to save Sh16.8 billion ($130 million) a year after the IMF reduced penalties for breaches of conditions tied to loans advanced to the country.
The IMF Executive Board in October reviewed fees and surcharges attached to its lending to ease the burden on indebted countries.
These conditions that attract the surcharges include borrowing
IMF loans above the agreed portions and late payments of credit advanced by the multilateral lender.
The IMF has raised the cap at which countries invite penalties for exceeding their share of loans, cut interest for tapping the fund’s foreign currency reserves, increased the amount of loans that attract commitment fees and cut interest charged on late payment of debt.
IMF Deputy Managing Director Nigel Clarke revealed Kenya’s savings following the changes lowering the cost of maintaining public debts, especially for poor countries.
“There has been a review of the IMF’s charges and surcharges passed in October. Based on what’s outstanding from Kenya to the IMF, the adoption of that policy will save Kenya about $130 million a year which is quite significant,” he said on Tuesday.
The surcharges are aimed at discouraging heavy and prolonged use of IMF’s loans as well as ensuring discipline in repayment of the fund’s loans.
Kenya has been paying the surcharges since February this year when it breached the agreed share of its IMF loans, set at 187.5 percent of its Sh92.6 billion ($716.4 million) quota of Sh92.6 billion ($716.4 million).
The review of the surcharges, which became effective on November 1, allows countries including Kenya to borrow up to three times above their quota without attracting penalties.
This means Kenya’s outstanding loans to the IMF can increase up to Sh277.8 billion without attracting penalties from the previous Sh176.3 billion.
Kenya’s outstanding loans from the IMF have soared from Sh48.91 billion in June 2019 to Sh420.1 billion ($3.25 billion).
Kenya will also enjoy lower interest for tapping the IMF’s special drawing rights (SDR)—which are foreign currency reserves that countries can tap into.
Interest on the SDR facility was cut to 0.6 percent from one percent.
The IMF also increased the borrowing limit that invites payment of annual commitment fees from 115 percent of the quota to 200 per cent.
Commitment charges refer to fees assessed by a lender to a borrower compensating the former for pledging money.
Penalties for late payment of IMF loans have been lowered to 0.75 percent of the due debt from the previous one percent.
Kenya was among 20 countries globally paying surcharges and is among nine to earn relief with Cote d’Ivoire, Tunisia, Senegal, Benin and Gabon.
Mr Clarke says the lower charges and surcharges are part of the fund’s renewed support for member countries most in need. The reforms include offering an executive director seat to nations from sub-Saharan Africa.
“The IMF is listening and is responding. Changes made a few weeks ago will give sub-Sahara Africa a much bigger voice,” Mr Clarke said. Kenya spent Sh11 billion on interest payments to the IMF in the fiscal year that ended June.
Kenya has stepped up the use of concessional loans from the IMF and the World Bank since the Covid-19 economic fallout of 2020 to fill the budget and avoid borrowing from costly commercial sources.
This is critical in easing the debt burden that has seen over 65 percent of taxes consumed annually by debt repayments.
Former president Uhuru Kenyatta, who took the helm in 2013, oversaw a jump in public borrowing in the push to fund infrastructure projects like the standard gauge rail (SGR)
Total debt stands at 70 percent of GDP, up from about 45 percent when he took over - a surge that some politicians and economists say is saddling future generations with too much debt.
Typically, World Bank and IMF loans have zero or very low interest rates and have repayment periods of 25 to 40 years, with a five- or 10-year grace period.
The influence of the World Bank and IMF on Kenya’s economic policy planning due to their mounting loans has surged to levels that would require the government to implement tough conditions across sectors.
