Corona: Kenya to retain Sh70b if creditors agree to debt relief

Tuesday, April 21st, 2020 00:00 |
Cash. Photo/PD/Courtesy

Kenya could soon tap contingency fund to fight Covid-19 on the back of discussions with multinational creditors to reschedule debt servicing agreements.

Experts say such a debt relief will free up fiscal space which will greatly help the National Treasury to wade through the challenges during this period amid depressed economic growth.

Welcoming last week’s announcement by President Uhuru Kenyatta on Thursday, the experts said postponement of loan repayment will help revamp the economy once the pandemic is over, but warned that all eyes must be on China.

“The largest economies in the world are in discussions with ourselves on the issue of suspension of debts,” Uhuru had announced during the address from State House.

Economist Samuel Nyandemo estimates that Treasury could retain up to Sh70 billion in the medium term from the exercise to tackle coronavirus-based expenditures, if the lenders agree to a debt relief.

He, however, warned the relief or a waiver could be eroded by the dismal revenue collection by Kenya Revenue Authority (KRA) during the ongoing partial lockdown.

KRA has already missed its mid-annual tax collection bull’s eye by Sh88.3 billion after netting Sh779.3 billion in the first half of the 2019-2020 financial year.

“Sh70 billion is not little money at a time like this, though we will still need intelligent financial navigation to manage the situation and pre-empt an economic crash,” Nyandemo said.

Cash retained from debt relief will be used to employ more healthcare workers to bolster the medical system, offer monthly stipends to struggling Kenyans and purchase of essential medical supplies.

Last week, the G-20 nations agreed to suspend bilateral debt service payments until the end of the year for 76 low-income countries eligible for the World Bank’s most concessional lending via the International Development Association.

In total, $20 billion in debt service payments will be suspended, including $8 billion from private sector creditors, according to Brookings.


Kenya, South Africa and Angola were not included as they borrow from the International Bank for Reconstruction and Development, the World Bank Group organisation that lends to middle-income countries.

Nyandemo argues that Kenya is in a fix because most of its debts from China are commercials with other syndicated loans having already reached maturity.

It is on that premise that former vice president and Finance Minister Musalia Mudavadi urged the government to expeditiously ink a favourable debt relief deal with Beijing.

“China has a moral obligation to accede to a fresh look at Kenya’s debt portfolio. An engagement with Kenya’s Treasury is of the greatest essence,” he said.

According to Reuters, economies like Kenya which are heavily indebted to China will only enjoy a relief if the populous Asian giant agrees to a comprehensive debt deal.

“China is in the driver’s seat,” said Scott Morris, a senior fellow at the Center for Global Development (CGD), a Washington think-tank told the agency. “But this is going to require real pain for creditors, and I’m not sure they’ve come to terms with that.”

Multiple reports say Beijing is likely to endorse a temporary freeze on debt payments by African countries as part of an expected agreement by the G20, but to also use the move as a political move.

But Martin Mugambi, chief executive officer at Citibank Kenya and East Africa head, told Euromoney that a blanket debt-relief will be unlikely.

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