Kenya is trying to use the IMF’s reserves to plug budget holes after paying off China’s debt

Treasury Department’s Bureau of Public Debt Management Director General Haron Sirima said Kenya had a number of options, including “leveraging additional SDR allocations from the IMF” to fill the liquidity gap that remained after Nairobi in July started servicing loans from China.

Kenya had expected to extend a moratorium on debt repayment from bilateral lenders, including China, which began in January 2021, for an additional six months through December 2021, to allow payments of nearly Ksh 50 billion ($ 453 million) to Beijing lenders avoid.

Chinese lenders, particularly Exim Bank, have been uncomfortable with Kenya’s push to extend debt servicing to rich nations, which has resulted in delays in disbursements to Chinese lender-funded projects.

This forced Nairobi to abandon its request for China to extend its debt repayment leave for fear of straining relations with Kenya’s largest bilateral creditor.

Dr. Sirima said the Treasury Department had other options, including finding development partner grants, switching funding for “specific” capital projects to public-private partnerships (PPP) and developing IMF reserves.

“In addition (we also have the opportunity) to rationalize further expenses in the amount of the lost DSSI funding,” he said in an interview with Business Daily.

The IMF is expected to play a role in shaping policies that would require the government to implement tough conditions in many sectors.

The terms are tied to the fund’s multi-billion shillings credit facility to Kenya, where money is poured directly into the budget to top up the public purse.

Under the administration of former President Mwai Kibaki, Kenya stayed away from this type of loan, with most of the support coming from institutions such as the IMF and World Bank in the form of project support.

Kenya faced a worsening cash flow situation characterized by declining revenues, worsening debt service obligations and the effects of the Covid-19 pandemic.

The G20 countries, including Belgium, Canada, Denmark, France, Germany, Italy, Japan, the Republic of Korea, Spain and the USA, have a one-year grace period between January and June of Sh32.9 billion.

Kenya requested an extension of G20 debt relief until December, aiming for additional savings of SH39 billion.

Dr. Sirima says the response to Kenya’s request for G20 aid has been “positive”.

Kenya spent less than $ 99.73 billion less than it originally budgeted on servicing its external debt for the year ended June 2021, partly due to six-month debt relief.

Although China is a G20 member and has signed the agreement, much of its loans to Kenya have been made on a commercial basis by government agencies, quasi-public corporations, and state banks such as the China Development Bank and Exim. awarded Bank of China.

China has tried to negotiate its debt relief separately, but on the same terms as the G20 countries, reserving the right to determine the amount and loans that will result in the moratorium.

Since 2014, the government of President Uhuru Kenyatta has mainly taken out loans from China for the construction of roads, bridges, power stations and the standard-gauge railway (SGR).

This started after Kenya became a low-middle-income economy and excluded it from highly discounted loans from development lenders like the World Bank.

The terms of China’s lending business with developing countries are unusually secret, requiring borrowers to prioritize repayment to Chinese state-owned banks over other creditors. A cache of such contracts was revealed in an earlier report by Reuters.

The dataset – compiled over three years by AidData, a US research laboratory at the College of William & Mary – includes 100 Chinese loan agreements with 24 low- and middle-income countries, some of which are suffering from the rising debt burden the economic consequences of Covid-19 Pandemic.

It uncovered several unusual features, including confidentiality clauses preventing borrowers from disclosing the terms of the loans, informal collateral agreements that benefit Chinese lenders to other creditors, and promises to keep the debt out of collective restructuring – described by the authors as “no Paris “Denotes club” clauses, the report said.

The Paris Club is a group of officials from major creditor countries whose job it is to find solutions to debtor countries’ payment difficulties.

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