HomeBusinessEntrepreneurDebt relief deal cuts costs by 35pc in three months

Debt relief deal cuts costs by 35pc in three months

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Economy

Debt relief deal cuts costs by 35pc in three months


Treasury1

National Treasury building. FILE PHOTO | NMG

Kenya’s expenditure on servicing external loans in the third quarter through March 2021 fell 34.62 percent on the back of a deal with rich creditor countries to defer loan payments initially for six months.

The National Treasury data shows payment to foreign creditors for the quarter amounted to Sh42.18 billion compared with Sh64.51 billion in a similar period last year.

The Sh22.33 billion drop helped free up cash for economic recovery at a time the Treasury was facing shortfalls in revenue largely due to reduced earnings by companies and households which also hit growth in consumption.

The savings were due to suspended payments to bilateral lenders especially China, which was by last December accounting for 67.76 per cent of bilateral debt costs and a fifth of total external debt costs.

The data shows bilateral debt costs dropped Sh32.75 billion, or 90.49 per cent, in the January-March 2021 period to Sh3.44 billion on the deal that the Treasury struck with bilateral creditors, including China, covering the six months through June 2021.


Suspension of debt payments to Beijing accounted for Sh29.15 billion, 90 per cent, of the drop in bilateral debt obligations, underlining the weight Kenya’s second-largest creditor [after the World Bank Group] has on Kenya’s debt costs.

Debt payments to multilateral lenders such as the World Bank were nearly flat in the January-March 2021 period, rising a measly 0.9 percent to Sh8.41 billion year-on-year.

However, debt servicing costs for commercial loans — largely Eurobond and syndicated credit— grew by half to Sh30.33 billion in the review period.

Kenya was initially reluctant to apply for debt suspension offers from rich countries but had a change of heart in January after total revenue underperformed the target by Sh97.11 billion to Sh810.55 billion in the half-year period to December 2020.

The Treasury has projected savings of up to Sh78.17 billion after it signed the debt repayment moratoriums with the Paris Club of countries and China.

Kenya is seeking the debt relief programme under the G20-led Debt Service Suspension Initiative (DSSI) framework to be extended by a further year after the current deal expires in June to bolster savings for economic recovery efforts.

“[This is important because] it will free up resource for other purposes, and in particular supporting the economic recovery programme,” Central Bank of Kenya Governor Patrick Njoroge said on May 27.



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88E70B70D1Aa46A497A524Eca9E5C16A?S=96&D=Mm&R=G Debt Relief Deal Cuts Costs By 35Pc In Three Months
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