Economy

Kenya to defer Sh75bn after U-turn on G20 debt relief plan

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Treasury Cabinet Secretary Ukur Yatani. FILE PHOTO | NMG

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Summary

  • Treasury Secretary Ukur Yatani says Nairobi has received clarity on the impact of the debt relief programme on the country’s credit rating.
  • Kenya had turned down the G20 initiative in May saying the terms of the deal were too restrictive.
  • Kenya is facing a huge budget deficit, with the infectious virus having muted tax revenue collections growth due to a slowed pace of economic activities.

Kenya is now ready to defer Sh75.5 billion ($690 million) in debt payments to help it weather the Covid-19 pandemic, marking a U-turn stance on the G20 coronavirus debt relief initiative it had snubbed in May.

Treasury Secretary Ukur Yatani says Nairobi has received clarity on what impact the debt relief programme might have on the country’s credit rating and a final decision will be made as early as next week.

“We have been reluctant in the past because of the attendant unintended consequences in terms of those holding private debt,” Mr Yatani told Reuters news agency.

“But now after getting a bit of assurance that it is a matter that can be managed, we are now strongly considering joining the arrangement.”

Kenya had turned down the G20 initiative in May saying the terms of the deal were too restrictive and it also fretted the impact that debt relief might have on Kenya’s credit rating.

Nairobi, for instance, was concerned that terms of the deal limiting countries’ access to international capital markets during the standstill could hinder Kenya’s ability to finance its deficit later in the year.

Treasury had instead opted to engage creditors including Germany, Sweden, Japan, China and France individually to secure debt service moratoriums of about a year.

The change of mind comes at a time a resurgent in the number of Covid-19 infections and deaths has cast doubt on turning the corner on the health crisis that has morphed into a deep financial crisis.

Kenya had 72,686 confirmed cases on Wednesday from 44,881 on October 18, reflecting a 62 percent growth in 30 days. Fatalities have increased to 1,313 from 832 a month ago, representing a 57.8 percent jump.

Local health officials have been warning of the second wave of the pandemic likely to usher in stringent control measures such as lockdowns akin to what is happening in Europe.

Budget deficit

The G20’s Debt Service Suspension Initiative (DSSI) is important to Kenya at a time debt servicing costs are eating into a significant chunk of its revenue and tax collections are coming under pressure due to falling corporate revenues, layoffs and job cuts.

Kenya’s public debt touched Sh7.12 trillion in September, a Sh1.157 trillion rise since September last year, with Sh835 billion or 72 per cent of it coming in the Covid-19 period.

The G20 in April agreed to suspend payment obligations on bilateral debt owed by their least developed counterparts through the end of the year under pressure from global organisations.

Mr Yatani says that agreeing to the arrangement will also help Kenya secure future funding from the International Monetary Fund and World Bank.

“They are trying to introduce this as one of the key prerequisites to accessing resources from the IMF and World Bank,” Mr Yatani told Reuters.

Kenya is facing a huge budget deficit, with the infectious virus having muted tax revenue collections growth due to a slowed pace of economic activities.

The budget deficit swelled to 8.2 per cent of GDP in the financial year ended June, from an initial forecast of below seven per cent due to reduced tax collection and foregone revenue on tax cuts issued to individuals and businesses from April.