Kenya could save Sh71 billion from debt relief - World Bank

Kenya will save $675 million (Sh71.5 billion) in case of suspension of debt payments by official bilateral creditors, the World Bank has said.

In its latest report analysing the state of Sub-Saharan Africa’s economy in the face of the Covid-19 crisis, the World Bank noted that such a debt moratorium would immediately inject liquidity and enlarge the fiscal space for governments.

“A debt moratorium granted by official creditors to Angola represents $4.1 billion (four per cent of GDP), while the resources released for Kenya would total $675 million (0.8 per cent of GDP) if the suspension of debt payments comes from official bilateral creditors,” read the Africa’s Pulse report, which also projected that the region’s economy will plunge into a recession for the first time in 25 years.

Kenya is one of the countries that are pushing for debt relief following the economic shock from the coronavirus pandemic. The appeal by all African countries is being done through the African Union.  

National Treasury Cabinet Secretary Ukur Yatani said Kenya is not only targeting a waiver of debt payment by bilateral lenders but also multilateral ones such as the World Bank, International Monetary Fund and African Development Bank.  

“We are negotiating for rescheduling of debt. We are not doing it as a country, it is negotiated under the ambit of the AU (African Union) and all developing countries,” he said in an interview with The Standard on Monday.

Debt standstill

Mr Yatani said rescheduling of multilateral loans is most likely to be agreed with the Bretton Woods institutions at the forefront in championing for a “debt standstill”.

“But you know a statement by World Bank and IMF will automatically translate to similar actions by all other lenders, including bilateral,” he said.

By end of December last year, Kenya had paid Sh30.6 billion to bilateral creditors in both principal and interest, with more than half of the money going to China which pocketed Sh17.8 billion from the national coffers.

The total external debt stock, including Eurobond, stood at Sh3.1 trillion by the end of December 2019.

The debt comprised of multilateral debt (33.4 per cent), commercial debt (33.1 per cent including the International Sovereign Bond), bilateral debt (33 per cent), and suppliers’ credit (0.5 per cent).

But even if Kenya and other African countries were to successfully renegotiate debt forgiveness, the elephant in the room is commercial debt.

Of the total Sh105.3 billion that Kenya paid to external creditors in the first half of the current financial year, more than half - Sh60.4 billion - went to commercial creditors including Eurobond investors and commercial banks.

Kenya is among the few African economies that are strongly welded into the global value chain, a situation that has exposed it to the shock from the coronavirus pandemic.

“African leaders are beginning to call for a larger resource flow from the global community, including international financial institutions, bilateral official creditors and the private sector,” said the World Bank in the report which tackled the effect of Covid-19 on Africa’s economy.