Kenya misses out on full debt service suspension slice

The government has come under scrutiny for failing to take full advantage of opportunities presented by the Debt Service Suspension Imitative (DSSI).

Analysts have argued that Kenya stood to reap more substantive gains than the current Ksh.32.9 billion bagged from its late participation in the initiative.

On Monday, Kenya’s participation in the DSSI was made public from which it further stands to save Ksh.40.6 billion in debt service suspension to G20 members bringing its total windfall to Ksh.73.5 billion.

Nevertheless, Kenya would have doubled its saving from the initiative which opened in May last year but for its dillydallying which saw it miss out on the first window of debt service suspension which run for six months to December 2020.

The first phase of the initiative would have seen Kenya save on an estimated Ksh.75 billion in repayments that fell due in the past six months.

“We absolutely stood to make significant savings by joining the program earlier even if we joined the initiative in October,” Genghis Capital Head of Research Churchill Ogutu noted.

Moreover, Kenya has failed to apply for debt suspension to multilateral and commercial creditors in fear off investor retribution including a downward rating on the country’s credit worthiness alongside limited access to international capital markets.

This is as the participation of private creditors in the DSSI remains shrouded in complexities represented largely in the heterogeneity of the creditors who range from pension funds to investment banks.

Countries such as Ivory Coast have nevertheless dared to eat its cake and have it by taking up the DSSI offer earlier last year without retributions as it returned to the Eurobond late in the year to much success.

According to Ogutu investors and sovereign rating agencies have soften their stance on the consequences of countries participation in the DSSI.

“Investors are acknowledging that COVID-19 is a one-off risks and that yields offered by countries participating in the DSSI might just be as attractive,” he said.

According to data from the National Treasury public debt management report covering the year to June 2020 multi-lateral and commercial banks represent the bulk of holders of Kenya’s external debt at 39.3 per cent (Ksh.1.3 trillion) and 30.3 per cent (Ksh.1 trillion).

Current savings made by Kenya meanwhile represent a mere share of Ksh.642.7 billion in estimated debt servicing costs in the year to June 2021 according to data from the annual debt report.

Kenya total debt service has averaged Ksh.598.2 billion in the last five years with total obligations in the last year having stood at Ksh.651.5 billion.

Callstreet Research Director George Bodo had previously argued the need for both debt service suspension and application for refinancing to alleviate Kenya’s debt pain.

“Debt suspension should target anything between $1 billion (Ksh.109.6 billion) and $2 billion (Ksh.219.2 billion) for it to make sense. Lengthening the maturity profile of external debts can also deliver a much needed fiscal space,” he said in a note published at the end of November.

Kenya is expected to remain under pressure over its external debt servicing costs with the repayment obligations being set to surpass Ksh.1 trillion annually in the next three years.

The debt servicing pressure comes at a time when Kenya’s own debt pile up has come under sharper scrutiny at a time when the stock of public debt is projected to cross the Ksh.9 trillion before June 2023.

Kenya’s participation in the DSSI is however expected to provide some respite on its vulnerabilities with Treasury for instance being obligated to make full and timely disclosures on Kenya’s current debt position.

Presently, the country’s publicly disclosed debt register only runs to June 2018.