Kenya is seeking a Ksh40.6 billion debt service suspension for a debt due from 1 January and 30 June 2020 from bilateral creditors outside the Paris Club after the latter agreed to Nairobi’s request to suspend its collection as Kenya faces a resource squeeze in the midst of the COVID-19 Pandemic.
Treasury is seeking to suspend servicing of due loans worth at least $802 million to the end of June even as the Ministry walked back on its earlier stance when it had maintained suspending debt servicing obligations was not an option as it would culminate into lower credit ratings for Kenya.
Treasury CS Ukur Yattani says the formal approval of the application is expected within a few weeks. This comes after the Paris Club accepted Kenya’s application to suspend Ksh32.9 billion due in the first six months of 2020.
The Paris Club which consists of Canada, Belgium, Denmark, France, Japan, Italy, South Korea, Spain, US, and Germany agreed to Kenya’s application saying it will improve Kenya’s spending in mitigating impacts of COVID-19.
“The Government of the Republic of Kenya is committed to devote the resources freed by this initiative to increase spending in order to mitigate the health, economic and social impact of the COVID19-crisis,” reads a Paris Club Statement.
The Debt Service Suspension gives Kenya a total of five years to repay the loans and a year’s grace period.
Members of the Paris club also said that Kenya is seeking relief from other bilateral creditors, in a bid to improve its debt transparency and management.
“The Government of the Republic of Kenya is also committed to seek from all its other bilateral official creditors a debt service treatment that is in line with the agreed term sheet and its addendum. This initiative will also contribute to help the Republic of Kenya to improve debt transparency and debt management.”
The China Question
The real headache for Kenya however will be its largest foreign creditor— China.
Kenya is scheduled to begin paying back a Ksh 162 billion debt for the Nairobi-Naivasha portion of the Standard Gauge railway, following the end of its five year grace period.
The first of the 30 semi-annual payment is due on 21 January, while the last is set for 21 July 2035.
The maturity of the second SGR Loan is expected to push repayments to Exim bank from Ksh71.4 billion in the current fiscal period to Ksh111.47 billion in the next one.
Kenya paid Ksh31 billion to China’s Exim bank in the year ending June 2019.
Yattani says Treasury is in talks with Beijing to finalize negotiations on the debt service suspension, adding that China has generally agreed to the matter.