Kenya’s debt payment obligations will reduce due to lower interest charges and a longer repayment period.
On Wednesday, the World Bank disbursed a $1 billion (Sh107 billion) loan to Kenya for budgetary support and to help tackle the Covid-19 menace.
Last year, the institution also gave the country Sh75 billion loan for budgetary support, the first such financing in years
Kenya’s continued use of the concessionary funding option from international financing institutions such as the World Bank and bilateral partners is likely to improve the country’s credit profile, Moody’s has said.
David Rogovic, vice president and senior analyst at Moody’s Investors Service said on Wednesday if the recent preference for concessional loans instead of commercial debt such as Eurobonds is sustained over a longer period, Kenya’s debt payment obligations will reduce due to lower interest charges and a longer repayment period.
“They (Treasury) had already started to take these steps even before the Covid-19 outbreak. Over a period of several years, if they can sustain the change from commercial debt to concessional loans, it will be a positive for the country’s credit profile,” he said during a video call with investors of Stanbic Bank.
“There is lower default or rollover risk with these loans.”
On Wednesday, the World Bank disbursed a $1 billion (Sh107 billion) loan to Kenya for budgetary support and to help tackle the Covid-19 menace.
Last year, the institution also gave the country Sh75 billion loan for budgetary support, the first such financing in years
Mr Rogovic added that efforts by the Treasury to lengthen the maturity profile of local debt are also being seen in a positive light in terms of reducing the country’s debt risk.
In recent years, Kenya has been relying on commercial debt, largely through Eurobonds, to close the external financing part of the budget deficit.
This followed the rebasing of the economy in 2014 that pushed the country into the lower middle-income category, limiting the availability of concessional loans at a time when the government was embarking on a massive borrowing spree to finance large infrastructure projects.
The Moody’s executive, however, warned relying on concessional loans to finance the budget deficit would see the country face more onerous conditions from the lenders, who have in the past used the lending to demand policy reforms and stricter spending discipline.
Concessional loans from the financing institutions or bilateral partners also have a slower disbursal process than commercial debt.
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