Kenya loses Sh87 billion by shunning a debt relief offer from G20 countries

Treasury Cabinet Secretary Ukur Yatani. [ File, Standard]

Kenya has lost Sh86.6 billion after refusing to take an offer to have its debt service suspended by the group of 20 richest countries, according to a new World Bank report.

This is nearly enough to pay for the ongoing road construction in the next 12 months as tax revenues dwindle following the adverse effects of Covid-19 pandemic.

However, the National Treasury has been non-committal on taking up the offer fearing that the move will jeopardise its credit rating, which would then make it difficult for the country to access credit in the open market.

The World Bank noted that the Debt Service Suspension Initiative (DSSI) to grant debt service suspension to the poorest countries, to help them manage the impact of the pandemic, has provided some respite for some countries.

“However, so far, participation in the DSSI has led to small potential savings for African countries (US$5.2 billion, Sh561.6 billion, for participating countries), while fears of downgrading by rating agencies in the event of private creditor participation are engendering co-ordination problems,” said the World Bank in the Africa Pulse Report.

“Given the nature of the Covid-19 shock, greater access to concessional official finance will be needed to help low-income countries in the region navigate a path through the crisis that protects the economically vulnerable without jeopardising recovery and growth,” added the lender.

Yatani hinted at the possibility of going back to the market after he turned down a debt moratorium offer from the G20 citing restrictive terms and the possibility of Kenya’s credit rating being downgraded.

Recently, the Chinese government announced that it had agreed to delay loan repayments for 77 low-income countries as part of the G20 nations’ debt relief programmme.

The temporary relief to poor nations was meant to enable them to weather the Covid-19 storm, with the moratorium starting on May 1 to the end of December. No details have been provided on the terms of the debt relief that China would offer to the 77 countries.

Yatani had raised concerns that the terms of the G20 deal limited countries’ access to international capital markets and could hinder Kenya’s ability to finance its deficit later in the year. Kenya could have saved about Sh71 billion from the debt service suspension by the G20.

Over Sh1 trillion is in bilateral debt and Yatani had earlier said Kenya was instead engaging creditor countries including Germany, Sweden, Japan, China and France individually to secure moratoriums on debt service payments lasting around a year.

Kenya’s public debt stood at Sh6.9 trillion as of June 2020 with almost half of it owed to external debt creditors. The country is set to spend nearly a trillion on public debt servicing expenses in the new financial year ending June 2021.

In its review of the coming budget, the Parliamentary Budget Office (PBO), pointed out that debt-repayment had outstripped development expenditure, which is projected to stand at Sh584 billion next year.

Amid the Covid-19 pandemic, Kenya’s budget deficit for the next financial year stands at Sh823 billion.

Treasury expected to borrow Sh349.7 billion externally and Sh486.2 billion from the domestic market. This is expected to significantly push up the country’s national debt.

Moody’s, a global rating agency, also recently changed the outlook of Kenya’s credit-worthiness to negative, citing the country’s massive debt obligations. By changing the outlook from stable to negative, the US-based rating agency essentially raised a red flag on the possibility of Kenya defaulting on its debt.