The International Monetary Fund (IMF) has approved an extension of debt relief for 24 poorer countries.
Debt relief extension could see Kenya benefit from it, considering it is listed among poor countries in the IMF book.
It is the fourth tranche of debt service relief from the Catastrophe Containment and Relief Trust (CCRT) for 24 member countries with eligible debt falling due in the period through January 10, 2022.
“The Executive Board of the International Monetary Fund (IMF) approved on October 6, 2021, the fourth tranche of debt service relief from the Catastrophe Containment and Relief Trust (CCRT) for 24 member countries with eligible debt falling due in the period through January 10, 2022,” said IMF in a statement.
The executive board also approved the inclusion of the Kyrgyz Republic and Lesotho among the beneficiary countries, enabling these members to receive relief of their debt service.
The approval of the fourth tranche, totaling approximately Ksh.13.7 billion (US$.124 million), follows three prior tranches approved on April 13, 2020, October 2, 2020, and April 1, 2021.
“The Executive Board also approved the inclusion of the Kyrgyz Republic and Lesotho among the beneficiary countries, enabling these members to receive relief of their debt service falling due to the Fund through January 10, 2022.”
The debt service relief helps free up scarce financial resources for vital health, social, and economic support to mitigate the impact of the COVID-19 pandemic.
Subject to the availability of sufficient resources in the CCRT, debt service relief for all beneficiary countries could be provided for the remaining period from January 11 to April 13, 2022, amounting to approximately Ksh.107.7 billion ($973 million) for the entire two-year period.
In March 2020, managing director Kristalina Georgieva launched an urgent fundraising effort to raise $1.4 billion(Sh154 billion) in grants for the CCRT.
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This would enable the CCRT to provide financial assistance for relief on debt service for up to a maximum of two years, while leaving the CCRT adequately funded for future needs.
So far, donors have pledged contributions totaling about SDR 609 million ($860 million), including from the European Union, the UK, Japan, Germany, France, the Netherlands, Spain, Switzerland, Norway, Singapore, Greece, China, Mexico, the Philippines, Sweden, Bulgaria, Luxembourg, and Malta.
On April 2 this year, the executive board of the IMF approved a 38-month arrangements under the Extended Credit Facility(ECF) and the Extended Fund Facility(EFF) for Kenya in an amount equivalent to SDR 1.655 billion (305 percent of quota or about $2.34 billion).
This is about Ksh.259 billion, to support the next phase of the authorities’ COVID-19 response and address the urgent need to reduce debt vulnerabilities.
Approval of the ECF/EFF enabled immediate disbursement of about Ksh.34 billion (US$.307.5 million), usable for budget support.
It followed an emergency support to Kenya in May 2020 (100 percent of quota, equivalent to $739 million (Sh82.9 billion) at the time of approval,
On April 12 this year, at least 40 countries, including Kenya, received in excess of Ksh.593.96 (US$.5 billion) in debt relief through the Debt Service Suspension Initiative (DSSI).
According to the World Bank, the initiative, which came into effect in May 2020, saw countries on board the programme save money that is used to cushion citizens against the effects of the pandemic.
“The World Bank and the IMF are supporting the implementation of the DSSI by monitoring spending, enhancing public debt transparency, and ensuring prudent borrowing. DSSI borrowers commit to use freed-up resources to increase social, health, or economic spending in response to the crisis,” said the World Bank.
In January, Kenya’s request for debt service suspension was approved by the Paris Club of Major economies.
Debt repayment
The Kenyan Government was dealt a blow in its quest to ease future cash flow pressure after Members of Parliament rejected a bid to create a special fund to raise cash for repayment of maturing debt.
The National Assembly Committee on Delegated Legislation rejected the Public Finance Management Guidelines of 2021, which sought to create a special fund for debt servicing, on grounds that the regulations lack the input of Kenyans.
Kenya’s total debt service to revenues increased to 57 percent in 2019 from 17 percent in 2012 due to an increased debt stock and changing terms on new loans including one-off repayment of syndicated loans and Eurobonds in 2019.
According to the Central Bank of Kenya (CBK), this trend is expected to reverse in the medium term due to improving terms on new loans, and the restructuring of external commercial loans that have heavy maturities and high interest costs.
The structure of Kenya’s external (public and publicly guaranteed) debt changed significantly between 2010 and 2020, with increased uptake of commercial debt to improve Kenya’s presence in the international financial markets to diversify Kenya’s sources of external financing.
the Treasury had targeted utilising the fund to pay off maturing loans, buying back bonds when interest is low, and retire some of the debts earlier to avoid higher costs in the future.
“The Fund shall be used to cushion for amortization of liabilities arising from national government loans, redeem maturing …loans to alleviate rollover risks and facilitate debt restructuring and smoothening of maturity profile,” the Public Finance Management (Sinking Fund) Guidelines say.
The Public Finance Management (PFM) Act 2012 requires the Treasury to get the green light from lawmakers to set up the “Sinking Fund”.Currently, debt is paid from the Cons
