Treasury Cabinet Secretary Ukur Yatani. PHOTO | DIANA NGILA | NMG
Summary
- A restrictive clause in the Eurobond terms stopped Kenya from seeking a suspension of debt payments because it could have forced the country to pay the entire Eurobond debt worth $6.1 billion (Sh652.7 billion).
- Eurobond terms indicate that non-payment of Kenya’s external debt, including seeking moratoriums, would be considered as defaulting, which could trigger a demand for the country to pay the entire debt.
- The government is in talks with the IMF on a new lending facility, as Kenya faces huge budget deficits worsened by the coronavirus crisis.
The International Monetary Fund (IMF) and the World Bank have forced Kenya to take a Sh75 billion coronavirus debt relief from wealthy nations as a pre-condition for accessing cheap loans.
Kenya is now planning to defer around $690 million (Sh75 billion) in debt payments as it seeks further funding from the Bretton Woods institutions for budget support to weather the coronavirus economic hardships.
Treasury Cabinet Secretary Ukur Yatani reckons that Kenya made a U-turn in seeking a suspension of debt payments under a G20 initiative due to pressure from the Bretton Woods institutions.
A restrictive clause in the Eurobond terms stopped Kenya from seeking a suspension of debt payments because it could have forced the country to pay the entire Eurobond debt worth $6.1 billion (Sh652.7 billion).
Besides the Eurobond terms, the Treasury was fretful that the relief could hurt the country’s credit rating and be viewed as one that does not meet its international obligations.
“They (World Bank and IMF) are trying to introduce this as one of the key prerequisites to accessing resources from the IMF and World Bank,” Mr Yatani told Reuters.
“We have been reluctant in the past because of the attendant unintended consequences in terms of those holding private debt. 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 would retain about Sh75 billion in deferred debt repayments over the term of the relief deal aimed at helping poor countries weather the Covid-19 pandemic.
The relief equivalent is a 48.7 per cent of the Sh154 billion interest payments on foreign debt to be settled this year.
The group of 20 major economies had in April agreed to suspend payment obligations on bilateral debt owed by their less developed counterparts through the end of the year.
The goal was to free up more than $20 billion (Sh2 trillion) that poor or struggling countries could use to buttress their health services.
The government is in talks with the IMF on a new lending facility, as Kenya faces huge budget deficits worsened by the coronavirus crisis.
For nearly two years now, the country has abandoned expensive commercial debt to cut back on ballooning repayments, while revenue collection has been squeezed by the pandemic.
As part of that strategy, it secured $1 billion (Sh109 billion) in May in the second ever such direct lending for the budget from the World Bank, after the first was processed last year.
The type of credit Kenya has sought from the IMF and World Bank is a quick-disbursing facility where money flows straight into the budget to top up the public purse and is used at the discretion of the government.
Under the administration of former President Mwai Kibaki, Kenya kept away from this type of credit and most of the support from institutions like the IMF and the World Bank came in the form of project support.
The search of loans from the Bretton Woods institution signals the gravity of the country’s rapidly deteriorating cash-flow situation that is marked by falling revenues and worsening debt service obligations.
In the three month to September the Kenya Revenue Authority collected Sh378.7 billion against a target of Sh428.9 billion.
Eurobond terms indicate that non-payment of Kenya’s external debt, including seeking moratoriums, would be considered as defaulting, which could trigger a demand for the country to pay the entire debt.
Some of the actions that the Eurobond terms consider as default include failure to pay principal for 15 days or interest for 30 days and failure to comply with terms in the contracts for 45 days.
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