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Kenya listed among countries at high risk of debt default

BUSINESS
By Rawlings Otini | April 8th 2020

President Uhuru Kenyatta (left) chairs the 11th presidential roundtable on economic response to Covid-19 at State House Nairobi. Kenya has a huge task of paying its rising debt.

Kenya has been listed among six African nations at high risk of defaulting on external debt. 

According to data from Capital Economics and the World Bank, Kenya, Tunisia, Angola, Ghana, Zambia and South Africa are the most vulnerable countries in terms of external financing requirements as a percentage of foreign exchange reserves.

And as coronavirus wreaks havoc, a weakening shilling, and drops in tourism, income and corporate tax, exports and remittances are expected to shred Kenya’s finances, leaving it struggling to avoid default.

Kenya’s gross external financing requirements - the amount of money needed to service short-term external debt as a percentage of forex reserves - stands above 70 per cent, according to Capital Economics and World Bank data.

The country's forex reserves dropped sharply two weeks after the Treasury retired a Sh23.5 billion ($234 million) syndicated loan that matured late last month.

“It will be tough. The Parliamentary Budget Office estimates a drop in revenue of Sh122 billion, which I think is for the remainder for the year due to the tax relief measures announced by the president,” said Churchill Otieno of Genghis Capital.

And bearing in mind that interest payments - both external and internal - are around 23 per cent of expenditure means the pressure will mount.

“What will happen is that forex reserves will fall in tandem,” said Mr Otieno.

Central Bank data shows Kenya’s public debt stood at Sh6.1 trillion in February, with external debt at Sh3.11 trillion.

The country last week joined the African Union to push for debt waivers.

“As part of efforts to mitigate against the adverse effects of the global coronavirus pandemic, African governments will unite in pushing for loan waivers,” State House said in a statement.

China and the World Bank are the key holders of Kenya’s debt. The largest debt payment for 2020-21 is Sh40 billion, planned for payment to China Exim Bank.

Consultancy firm McKinsey last week said Kenya could lose Sh1 trillion of its income due to Corvid-19.

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