Local debt repayments swallow up Kenya’s savings from international debt suspension


Local debt repayments swallow up Kenya’s savings from international debt suspension

In Summary

  • The rise in local redemption costs cover about 78.7 per cent of Ksh.58.1 billion in savings from Kenya’s participation in the debt service initiative so far.
  • Only 11 creditors have so far agreed to suspend interest payments by Kenya falling due between January 1 and June 30 this year.
  • The National Treasury has so far provided little evidence of ring-fencing proceeds from the DSSI program in spite of the initiative requiring countries to deploy savings to specific programs to combat the effects of the COVID-19 pandemic.

Rising local debt repayments by the National Treasury have swallowed up savings from the country’s participation in the debt service suspension initiative (DSSI).

According to new data contained in a Budget and Appropriations Committee (BAC) report tabled in Parliament on Thursday, local debt servicing costs to June will jump by Ksh.45.7 billion.

The rise in local redemption costs cover about 78.7 per cent of Ksh.58.1 billion in savings from Kenya’s participation in the debt service initiative so far.

Only 11 creditors have so far agreed to suspend interest payments by Kenya falling due between January 1 and June 30 this year.

This include the elite Paris Club which features 10 creditors which granted Kenya a Ksh.32.9 billion relief in repayments at the start of the year, and China which allowed Kenya to skip Ksh.27 billion in due payments.

Kenya initially hoped to save a further Ksh.13.6 billion in interest suspension from the G20 member of countries.

The National Treasury has so far provided little evidence of ring-fencing proceeds from the DSSI program in spite of the initiative requiring countries to deploy savings to specific programs to combat the effects of the COVID-19 pandemic.

This means that savings made in external repayments by the National Treasury maybe re-deployed in ‘non-essential’ spending including recurrent spending and debt redemption.

Kenya’s participation in the DSSI has moreover come and latter stages denying the country its full complement of relief as it continues to navigate the tough macro-economic environment.

Nevertheless, the country will be pushing for the extension of the program when the World Bank and the International Monetary Fund (IMF) hold their annual spring meetings in May.

The BAC Committee has meanwhile warned of risks to Kenya’s DSSI participation indicating it may pile up the stock of future debt redemption.

“It is worth noting that the debt suspension, while favorable to the current financial year could result in servicing pile-up over the medium term,” the BAC report stated.

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Story By Kepha Muiruri
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