The National Treasury has revealed that Kenya has received debt service relief from creditors in the country’s international sovereign bonds popularly known as Eurobonds and standard gauge railway financier China Exim Bank, helping save Sh16.8 billion in due interest payments.
The Budget and Appropriations Committee (BAC) says in its report on the supplementary budget for 2020/2021 that the deferred payments were due to the impact of Covid-19 on State revenue. This is the first indication by the government that the debt service relief extended to commercial lenders, having previously disclosed the suspension of repayments to bilateral lenders under the Paris Club.
“Consolidated Fund Service (CFS) expenditure has declined by Sh3.63 billion. This reduction is largely on account of suspension of foreign debt servicing of Sh16.8 billion, as a result of account of debt service relief from Exim Bank of China and Commercial debt creditors for International Sovereign Bond,” BAC said in a report on the Supplementary Budget II.
The committee chaired by Kieni MP Kanini Kega, however, said there is an increase in domestic debt service by Sh13.16 billion due to interest rates for reopened or possibly tenor renegotiated bonds, hence the lower amount in overall repayment savings. Kenya has been pursuing the extension of the debt repayment relief from rich countries to free up cash to support economic recovery and bolster dollar reserves.
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, saving as much as Sh78.17 billion in money that would have otherwise fallen due.
The Treasury said the debt service suspension will free up resource for other purposes, and in particular supporting the economic recovery programme.
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.
The revelation that the commercial lenders agreed to also defer payments has however laid bare the extent to which the government went in conserving cash, at a time when tax revenue was down due to low economic activity and relief measures that were rolled out to offer Kenyans respite during the lockdown period.
The government and analysts expressed doubt that commercial lenders would be willing to offer moratorium in interest repayments, given that their lending is on business terms, unlike multilateral and bilateral lenders.