World Bank and IMF force Kenya to seek 75 billion shillings debt relief
- A restrictive covenant in the Eurobond terms prevented Kenya from requesting a suspension of debt payments, as it could have forced the country to pay the entire Eurobond debt worth 6.1 billion dollars (652.7 billion shillings).
- Eurobond terms indicate that non-payment of Kenya’s external debt, including seeking moratoriums, would be considered a default, which could trigger a demand for the country to pay all of the debt. .
- The government is in talks with the IMF over a new loan facility, as Kenya faces huge budget deficits made worse by the coronavirus crisis.
The International Monetary Fund (IMF) and the World Bank have forced Kenya to agree to 75 billion shillings in debt relief against the coronavirus from rich countries as a prerequisite for access to cheap loans.
Kenya now plans to defer around $ 690 million (75 billion shillings) in debt payments as it seeks additional funding from the Bretton Woods institutions for budget support to overcome the economic woes of the coronavirus.
Treasury Cabinet Secretary Ukur Yatani believes Kenya has turned back by calling for a suspension of debt payments as part of a G20 initiative due to pressure from the Bretton Woods institutions.
A restrictive covenant in the Eurobond terms prevented Kenya from requesting a suspension of debt payments, as it could have forced the country to pay the entire Eurobond debt worth 6.1 billion dollars (652.7 billion shillings).
In addition to the Eurobond terms, the Treasury feared that the relief could hurt the country’s credit rating and be seen as a breach of its international obligations.
“They (the World Bank and IMF) are trying to introduce this as one of the essential preconditions for accessing IMF and World Bank resources,” Yatani told Reuters.
“We have been reluctant in the past because of the unintended consequences for those who hold private debt. But now, having gained some assurance that this is a manageable issue, we are now seriously considering joining the arrangement. “
Kenya is reportedly keeping around 75 billion shillings in deferred debt repayments over the life of the relief deal to help poor countries weather the Covid-19 pandemic.
The equivalent of the relief is a 48.7 percent of the Sh154 billion interest payments on the external debt to be settled this year.
The group of 20 major economies agreed in April to suspend bilateral debt payment obligations owed by their less developed counterparts until the end of the year.
The goal was to free up more than $ 20 billion (Sh2 trillion) that poor and struggling countries could use to strengthen their health services.
The government is in talks with the IMF over a new loan facility, as Kenya faces huge budget deficits made worse by the coronavirus crisis.
For nearly two years now, the country has abandoned costly commercial debt to reduce skyrocketing repayments, while revenue collection has been crushed by the pandemic.
As part of this strategy, he secured $ 1 billion (Sh 109 billion) in May as part of the second such direct loan to the World Bank budget, after the first was processed in the year. last.
The type of credit Kenya has requested from the IMF and the World Bank is a quick disbursement facility where the money goes directly into the budget to supplement public funds and is used at the discretion of the government.
Under the administration of former President Mwai Kibaki, Kenya has steered clear of this type of credit and most of the support from institutions like the IMF and the World Bank has come in the form of a support for projects.
The search for loans from the Bretton Woods institution points to the severity of the country’s rapidly deteriorating cash position, marked by declining income and worsening debt service obligations.
In the three months to September, the Kenya Revenue Authority raised 378.7 billion shillings against a target of 428.9 billion shillings.
Eurobond terms indicate that non-payment of Kenya’s external debt, including seeking moratoriums, would be considered a default, which could trigger a demand for the country to pay all of the debt. .
Some of the actions Eurobond terms deem to be in default include defaulting on principal for 15 days or interest for 30 days and breaching contract terms for 45 days.