Rich nations snub Kenya’s second-round debt relief request

Some rich countries snubbed a second-round debt relief request by Kenya, turning pressure on the Treasury to find alternative sources of cash to fund growth. 

Documents by the Treasury showed that a second phase $379 million (Sh48.86 billion) debt service suspension request by Kenya was ignored by some bilateral lenders — leaving the country in a tight spot of having to fully service its dues in an economic environment heavily weighed down by the shocks of Covid-19.

Following the snub, Kenya now projects a lower debt service relief of about Sh10.06 billion for the six months to December —an amount that is 79.4 percent short of its earlier expectations.

“During the second phase (July-December 2021), the government requested all its bilateral creditors for debt service suspension estimated at $379 million. However, this amount is now projected to be lower at around $89 million due to non-participation by some creditors,” Treasury Cabinet Secretary Ukur Yatani said in a disclosure to the International Monetary Fund.

In the first half of 2021, Kenya enjoyed goodwill from rich nations under the G20 debt suspension initiative. During the six months to June, Kenya obtained a debt suspension of $425 million (Sh48.06 billion) from the rich nations — a gesture that helped to reduce financial pressure on the government.

The G20 countries, including Belgium, Canada, Denmark, France Germany, Italy, Japan, Republic of Korea, Spain, and the US, rescheduled payments of $291.3 million (Sh32.95 billion) in principal and interest due between January and June to the next four years with a one-year grace period.

Kenya sought an extension of the debt relief from G20 countries to December.

Records by the Treasury show that Kenya wired $256.9 million (Sh29.05 billion) to China in the quarter to September 2021 to ease a standoff over debt repayments that delayed disbursements to projects funded by Chinese loans.

Kenya paid the millions in a period when Chinese lenders, especially Exim Bank, had opposed Kenya’s application for a debt repayment holiday.

The opposition from Chinese lenders forced Nairobi to drop its push for an extension of the debt repayment holiday to avoid straining relations with Kenya’s biggest bilateral creditor.

China postponed the repayments in January, helping Kenya temporarily retain $239.1 million (Sh27.04 billion) that was due for six months ending June 30.