Kenya will add close to Sh400 billion to its total debt stock should it succeed in getting the two credit facilities from the International Monetary Fund (IMF) and the World Bank.
This follows reports that the country is negotiating for a $2.3 billion (Sh250.4 billion) from the IMF to help it respond to the negative economic effects of the Covid-19 pandemic.
Reports from Bloomberg, a business news outlet, also indicated that the government was keen on getting as much as $1.5 billion (Sh150 billion) from the World Bank to help it finance its expansive budget in the current financial year.
The loans from the IMF will be part of the highly conditional three-and-half year extended fund facility and extended credit facility on whose “many” terms Kenyan authorities have agreed with the Washington-based institution.
The government expects to receive most of these loans by June 2021. This would push up the country’s total debt by at least Sh827 billion in the current financial year.
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In a statement issued on Friday last week, the IMF said Kenyan authorities had agreed to take up either of the highly conditional extended fund facilities or the extended credit facility from the Washington-based institution.
As part of the condition for the access of the facility, the government has agreed to a raft of belt-tightening measures that include shoring up its taxes and restructuring some of its loss-making State-owned enterprises weakened by the pandemic.
The development comes when official data shows that the Kenya Revenue Authority (KRA) missed its target in the first three months of the current financial year due to the depressed business environment.
With KRA’s revenue declining, leaving a huge budget hole, Treasury is left with little option but to borrow to plug the hole.
“The programme would provide resources to protect vulnerable groups and would reduce debt vulnerabilities over time through a multi-year fiscal consolidation centred on raising tax revenues,” said Mary Goodman, an IMF advisor that led the team that visited Kenya.
National Treasury Cabinet Secretary Ukur Yatani told Bloomberg that Kenya was holding talks with the World Bank for a development policy operation loan of about $1 billion to $1.5 billion.
“We hope towards the end of the financial year, around May or June, to even access part of the disbursement from the World Bank,” said Yatani.
“It will all depend on a number of factors, including our ability to manage within the fiscal framework.”
Kenya had already received more than Sh122 billion from the two Bretton Woods institutions to help deal with the health and economic effects of coronavirus.
The government also hopes to reduce its debt repayment pressure, but it has been hesitant to join the Debt Service Suspension Initiative by the group of rich nations - the G-20.
Through the initiative, Kenya stands to save at least Sh75 billion in external debt repayment.
However, this might also come with the baggage of having its credit rating deteriorate, a situation that will expose the country should it go for more loans from the market.
Yatani has insisted that Kenya is yet to agree on whether it will participate in the initiative.