The Sh60 billion that Kenya will save from debt repayment holidays will go towards offsetting other spending obligations, including disbursement to counties.
National Treasury Cabinet Secretary Ukur Yatani (pictured) yesterday said the country would save close to Sh27 billion after China agreed to a standstill on debts due to Beijing between January and June.
This is on top of another Sh32.9 billion debt repayment holiday from 10 Paris Club countries, with Yatani noting that the cash would be critical in managing the country’s fiscal policy.
“We can now use that money to honour our obligations, including continue to finance both the national government and the county governments required,” said Yatani in an interview with Spice FM, a radio station owned by the Standard Group.
Due to dwindling tax revenues occasioned by the adverse effects of the Covid-19 pandemic, Treasury has fallen behind in the disbursement of funds to the 47 counties by two months.
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The pressure to repay debt, a first charge expenditure, would have seen Treasury sacrifice other expenditures, including key public services.
As a result, Treasury has engaged bilateral creditors under the G-20 framework to freeze debt repayment, a situation that would see it free up funds to help address the negative effects of the coronavirus pandemic.
China, said Yatani, agreed to Kenya’s request for a debt repayment holiday on Monday, just a few hours before the country paid its first instalment of the Sh162 billion loan to finance the Naivasha-Nairobi Standard Gauge Railway (SGR).
“The net sum of all this will give us the opportunity and a break on the kind of liquidity that we desire,” said Yatani, insisting that the country debt was still sustainable as the country is yet to default on any of its loans.
Unlike the funds saved by the Paris Clubs countries that will be repaid in four years, the Chinese loans would be paid “in the future,” according to Yatani.
The debt suspension, the CS said, is a testament to the confidence that creditors have on Kenya’s ability to repay its loans.
“There are many (countries) that request for these reliefs, but they don’t get them because they are considered extremely high risk,” said Yatani, noting that they had already made the arrangements to pay the SGR loan to China on Tuesday.
“But two days ago, after our engagement, we are happy to get feedback that we don’t need to pay now; we are going to pay in the future to give us a break in the management of our fiscal framework.”
It is not immediately clear how the debt suspension plan with China would work.
However, a debt schedule of monthly debt service payments due from the World Bank Debtor Reporting System (DRS) showed that Kenya is to pay close to Sh55 billion by the end of June.
Principle payments are estimated at Sh33.8 billion and interest at Sh21.6 billion.
China is Kenya’s largest bilateral lender, having extended about Sh736 billion to the country by the end of September last year.