Kenya in line to save Ksh.244 billion from debt restructure – World Bank
- The suspension of payments to Kenya’s official bilateral creditors alone is estimated at Ksh.71.4 billion ($675 million) or an equivalent 0.8 per cent of GDP.
- Treasury had scheduled Ksh.630 billion in principal and interest repayments for the financial year beginning in July 1 while targeting a narrowed fiscal deficit of 4.9 per cent from a widened deficit of 7.7 percent across the 2018/19 financial year.
- The multilateral lender is set to appeal for an official moratorium on debt repayment for the year by all countries in Sub-Saharan Africa (SSA) alongside the IMF later this week through proposals to the International Development Association (IDA).
Kenya stands in line to realize gains of up to Ksh.243.6 billion ($2.3 billion) from the suspension of all 2020 loan repayments to its external creditors, the World Bank Group says.
The multilateral lender is set to appeal for an official moratorium on debt repayment for the year by all countries in Sub-Saharan Africa (SSA) alongside the International Monetary Fund (IMF) later this week through proposals to the International Development Association (IDA).
According to the World Bank Group, the relief on debt would serve to soften the economic blow on countries from the resulting Covid-19 pandemic by freeing up essential funding to members.
“The multilateral institutions argue preserving the sustainability of public debt among poorer countries may require a moratorium on official bilateral debt payments and participation by commercial creditors,” noted the World Bank in its updated regional outlook published last week.
Further, the suspension on repayments is seen enlarging the fiscal space of African countries, freeing up an estimated Ksh.3.8 trillion ($35.8 billion) in new liquidity to the region or an equivalent 2.1 of the (SSA) Gross Domestic Product (GDP).
The suspension of payments to Kenya’s official bilateral creditors alone is estimated at Ksh.71.4 billion ($675 million) or an equivalent 0.8 per cent of GDP.
The World Bank has continued to express its worry for rising debt distresses in the region as it expects the Covid-19 crisis to grow countries fiscal deficits by an average 3.5 per cent in a worst case scenario.
The institution further warns of higher debt servicing risks as countries switch their debt sourcing to non-Paris club members such as China.
“17 countries have bond spreads exceeding 1000 basis points, this is a threshold that historically preceding defaults,” added the report.
Some of the worst debt-hit countries in the region include Angola, Ghana, Nigeria and Zambia, whose bond spread exceeds the 10 per cent spread threshold.
Kenya is meanwhile classified as a moderate borrower having seen a rise in its stock of publicly guaranteed debt by 19.3 percent between 2012 and 2019.
Kenya’s stock of debt at the end of last year however stood above that of its peers at 62.3 per cent of GDP in nominal terms in comparison to a mean 57.4 per cent.
Last week, African leaders appealed to G20 members to consider a moratorium on payments as the pandemic puts a strain on resources on the continent.
The African Development Bank (AfDB) which has since made available in excess of Ksh.1 trillion ($10 billion) to members has called for global support to prevent member states from falling into a fully blown debt crisis.
“Its time for us to work together globally to reprofile all debt repayments both on principal and interest payments,” AfDB President Akinwumi Adesina said in a webcasted news conference Thursday.
The World Bank Group estimates countries in the region will require in excess of Ksh.10.6 trillion ($100 billion) in emergency economic stimulus and have made available an estimated Ksh.16.9 trillion ($160 billion) in overall assistance over the next 15 months.
On Monday, the IMF said it would provide immediate debt relief to 25 member countries among them Rwanda and Malawi under its Catastrophe Containment and Relief Trust (CCRT) program to allow them to focus more financial resources on fighting the coronavirus pandemic.
The IMF further made available an estimated Ksh.148.3 billion in emergency aid to Ghana and Senegal.
Kenya has on its part appealed for emergency support in excess of Ksh.120 billion from the pair of the World Bank and IMF as it seeks to mobilize resources to respond to the crisis.
“Several countries have made the request for emergency funding from the international financial services, we too as Kenya has also indicated its interest in this,” CBK Governor Patrick Njoroge said in a March 24 briefing.
According to data from the National Treasury, total public debt stood at Ksh.6.2 trillion as of February 20 with a split of Ksh.3 trillion and Ksh.3.1 trillion on domestic and external debt respectively.
The Treasury had scheduled Ksh.630 billion in principal and interest repayments for the financial year beginning in July 1 while targeting a narrowed fiscal deficit of 4.9 per cent from a widened deficit of 7.7 percent across the 2018/19 financial year.
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