Public debt relief helps cut Kenya payments by 78 billion shillings
Economy
Public debt relief helps cut Kenya payments by 78 billion shillings
Thursday May 13, 2021
Treasury official Haron Sirima. FILE PHOTO | NMG
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- The National Treasury estimates that deferred repayments on major loans will amount to 42.23 billion shillings for the current fiscal year ending in June, while relief on interest payments will reach 35.94 billion shillings. shillings.
- Haron Sirima, general manager of public debt management at the Treasury, said a change in the strength of the shilling also helped increase the size of savings.
Kenya projects savings of up to 78.17 billion shillings after signing moratoriums on debt repayment with several rich countries, raising pressure to reduce its domestic revenue collection.
The National Treasury estimates that deferred repayments on major loans will amount to 42.23 billion shillings for the current fiscal year ending in June, while relief on interest payments will reach 35.94 billion shillings. shillings.
Haron Sirima, general manager of public debt management at the Treasury, said a change in the strength of the shilling also helped increase the size of savings.
“The variance (of debt servicing costs) is also due to the exchange rate assumptions that the Treasury assumed a lower shilling,” Dr Sirima said.
“There have also been changes in forecasting rules or assumptions where more often delayed disbursements mean debt service is advanced.”
Last year, the shilling depreciated about 7.18 percent against the US dollar – which represents the lion’s share of Kenya’s outstanding debt – to 109.17 units. However, the shilling has appreciated 2.18% since the start of this year to trade at 106.79 against the greenback.
Kenya was initially reluctant to seek debt suspension offers from rich countries, but changed its mind in January after domestic revenue collection missed the 12.4% target, or 115.9 billion. of shillings, during the semester until December 2020 – hurt by the economic fallout from Covid-19.
Tax revenues
The impact of the disease had challenged the country’s tax revenue collection at a time when more of its debts were falling due to gaping budget deficits.
The about-face also came when the country exceeded its debt capacity, with the ratio of external debt service to exports reaching 23% in December of last year, exceeding the 21% threshold.
Public debt capacity is the maximum amount of debt a country can owe beyond which its income or growth can no longer increase.
With outlook reports from institutions such as the International Monetary Fund (IMF) showing that Kenya was vulnerable to export and market financing shocks, the country successfully requested debt suspensions from the Paris Club and from China.
China, Kenya’s largest bilateral lender, accounted for 39 percent of the deferred debt that Nairobi guaranteed in January. Chinese loans have financed the construction of rail lines, roads and other infrastructure projects in Kenya over the past decade.
The Nairobi-Beijing deal saw the Exim Bank of China withhold payment of 30.48 billion shillings, or 41.67 percent of the estimated 73.15 billion shillings it was expected to obtain this fiscal year ending in June.
This was preceded by another deal with the Paris Club that cumulatively deferred around 32.9 billion shillings on Jan. 11 under the G20-led Debt Service Suspension Initiative (DSSI).
Countries that accepted debt relief for Kenya under the DSSI were France, Italy, Japan, Spain, United States, Belgium, Canada, Denmark, Germany and the Republic of Korea.
The latest debt service cost estimates show Kenya will save 6.96 billion shillings from the 13.90 billion shillings, which were owed to Italy this year, while repayments to France have been reduced by 4.33 billion shillings against 8.68 billion shillings.