China allows Kenya to skip Ksh.27B in debt repayments

Kenya’s top creditor China has allowed Kenya to skip Ksh.27 billion in debt repayments falling due between January and June this year.

The freeze of repayments which fell due on Thursday this week is an affirmation of China’s participation in the Debt Service Suspension Initiative (DSSI) sponsored in part by G20 Countries in which China is a member.

“We are happy to announce that our engagement with China where we held about Ksh.27 billion in payments falling due between January and June,” Treasury Cabinet Secretary Ukur Yatani said in an interview with Spice FM.

“The net impact of this relief is an opportunity and break on the kind of liquidity we desire.”

After sitting on the fence for nearly seven months, Kenya opted to join the DSSI earlier this month, a program floated by the world’s elite creditors represented by the Paris Club whose purpose it to cushion countries under distress from the COVID-19 effects on fiscal plans.

Last week, Kenya was granted a suspension of Ksh.32.9 billion in repayments falling due 10 countries represented in the Paris Club between January and June.

The country further entered negotiations which could see it save an additional Ksh.40.6 billion in repayments falling due in the same period to G20 members.

Kenya however passed up the opportunity to open negotiations with multilateral and private creditors on a debt service suspension at it feared the repercussions of the creditors’ participation on the country’s sovereign credit rating.

In spite of observed cash-constrains in recent weeks alongside a growing stock of public debt, CS Yatani has fought back against piercing questions on the sustainability of Kenya’s debt insisting accepted offers for debt service suspension are proof of Kenya’s credit worthiness.

“We were prepared to make payments to China by today until the communication (on the acceptance of debt service suspension) about two days ago. Kenya’s debt position is highly sustainable. We have never defaulted on payments,” he added.

“The fact that we have never defaulted and are in good books and continue attracting as much resources as possible is something to be happy about.”

Kenya will have the next six years to make payments on the suspended debt service costs including a one year grace period after June 2021.

Proceeds from the savings are mandatory required to be channelled towards efforts to combat the pandemic while Kenya is further obligated to make public its entire stock of debt.

According to the latest data from the National Treasury, the stock of public debt stood at Ksh.7.3 trillion as of November 20.