Kenya gets more than 17 billion shillings in debt relief from rich countries
Kenya will save 17.1 billion shillings after a club of wealthy countries agreed to the country’s request for debt relief.
The move will see the country free up money which will instead be redirected towards tackling the health and economic effects of Covid-19.
This is after the Paris Club, an informal group of official creditors, agreed to offer debt relief to Kenya following the country’s request under the Service Suspension Initiative. debt (DSSI), which is managed under the auspices of the G20, a group of 20 rich countries. .
However, these savings pale in comparison to the 55.2 billion shillings that would be left in Kenya if China agreed to participate in the debt suspension initiative, which freezes loan repayments from January until the end of June.
Nonetheless, the suspension of the Paris Club offers cash-strapped Kenya much-needed respite as its tax revenues continue to dwindle and the country dives deeper into the credit market to help fund its expansive budget.
Noting that Kenya was eligible to benefit from the G20 DSSI, the Paris Club agreed to freeze Kenya’s debt repayment from January until the end of June.
“Paris Club creditor representatives have agreed to provide Kenya with a time-limited suspension of debt service due from January 1 to June 30, 2021,” the Paris Club said in a statement.
“The Government of Kenya is committed to dedicating the resources freed up by this initiative to scale up spending to mitigate the health, economic and social impact of the Covid-19 crisis.”
The Paris Club said Kenya has also committed to requesting debt service treatment in line with G20 terms from all its other official bilateral creditors.
“This initiative will also help Kenya improve debt transparency and management,” the Paris Club said.
Some of the club members who have participated in the DSSI include France, Germany, Canada, Denmark, South Korea, Spain, Italy, Belgium, Japan, and the United States.
Kenya will save the most money from Italy, which it was supposed to repay 4.5 billion shillings over the six-month period, followed by Japan with 4.4 billion shillings.
The other member of the club that was supposed to receive the third highest payout from Kenya is France, which was to receive 3.9 billion shillings from the country’s coffers. Germany was to get 1.82 billion shillings and Belgium 1 billion shillings.
However, it was not immediately clear whether the debt relief applies only to official bilateral loans or includes unofficial loans.
If the suspension only applies to official bilateral loans, Kenya could save 11 billion shillings instead of more than 17.1 billion shillings.
National Treasury Cabinet Secretary Ukur Yatani, in a response to a text message from The Standard, confirmed that Kenya had requested the G20 debt suspension.
“We appreciate and commend their quick response, further noting that the terms have been streamlined without harsh conditions,” he said.
A World Bank analysis had shown that Kenya could have saved up to 86 billion shillings between July and December 2020 if it had applied for the suspension.
However, the country dithered, fearing a downgrade in credit rating agencies.
The World Bank noted that the DSSI is granting debt service suspension to poorer countries to help them manage the impact of the pandemic, and has given some countries some breathing room.
“However, so far, participation in the DSSI has led to low potential savings for African countries ($5.2 billion – 561.6 billion shillings), while fears of downgrading by rating agencies in the event of private creditor participation create coordination problems,” the World Bank said in its Africa Pulse report.
China, however, does not seem to favor such an arrangement.
“So far, China has played hardball in debt relief talks, insisting that state-owned bank loans should be treated as commercial debt and not subject to the debt relief initiative. past G20 debt (the DSSI),” said Emerging Chief Economist William Jackson. at Capital Economics, a London-based economic research consultancy.
The Treasury also plans to save nearly 73 billion shillings by requesting a deferral of interest payments on government securities held by pension funds and insurance companies.